Brotherly buyout of JSPL's Chhattisgarh power plant

Billionaire Sajjan Jindal-led JSW Energy on Wednesday said it had agreed to acquire Jindal Steel & Power's (JSPL) thermal power plant in Chhattisgarh for an enterprise value of Rs 4,000 crore.

This could increase to Rs 6,500 crore if the latter is able to assure fuel security, along with a long-term power purchase agreement (PPA) providing a certain minimum return threshold.

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The acquisition, which is seen by analysts as a bailout for younger brother Naveen Jindal who has been trying to sell assets to get over liquidity issues, is a part of JSW's plan to achieve power generation capacity of 10,000 Mw by 2020.

The power plant, based in Tamnar near Raipur, has an installed capacity of 1,000 Mw. It would be transferred to a special purpose vehicle, Everbest Steel & Mining Holding, said JSPL in a notification to the BSE late on Tuesday night.

On Wednesday, JSW's shares fell 2.1 per cent, or Rs 27.9, to Rs 1,328; JSPL's shares also fell 3.6 per cent, or Rs 2.45 to Rs 66.5.

JSPL has a consolidated debt of Rs 46,000 crore. The plant has agreements to sell power for about 600 Mw capacity.

One of the most heavily indebted Indian firms, JSPL, is in advanced talks with some resources firms to sell more steel and mining assets.

A senior executive was quoted by Reuters as saying the firm hoped to close a $976-million (Rs 6,441.6-crore) power plant deal well before a mid-2018 deadline.

In a statement, JSW said the deal would be closed after the two conditions set by both the parties were fulfilled by the long-stop date, June 30, 2018.

"The seller has been given sufficient time until 2018 to meet the two conditions of the deal that is fuel security and assurance of the purchaser," said Sanjay Sagar, joint managing director and chief executive officer, JSW Energy. The deal also involves payment of an interest-bearing advance of Rs 500 crore, after approval from the shareholders of JSW Energy and Jindal Steel, and the Competition Commission of India.

Ravi Uppal, group chief executive and managing director, JSPL, said the advance would be used for working capital requirement. "The remaining Rs 6,000 crore would come as equity." JSPL would continue to look for more asset sales in steel and power, he said.

Pramod Menon, director, finance, JSW Energy, said at a press conference in Mumbai on Wednesday: "At present, the (Tamnar) asset is debt-free and so JSW Energy will not be taking any debt burden. However, this acquisition is being funded in 75:25 debt to equity ratio, which we are comfortable with."

As on March 31, JSW Energy has a net debt of Rs 15,000 crore and cash of Rs 300 crore. Annually, the company shells out Rs 1,500-1,700 for debt repayment, and maintains a debt to equity ratio of 1:7.

The company said the transaction would fall within the purview of related-party transactions under the norms laid down by the Securities and Exchange Board of India. Naveen Jindal, the promoter and chairman of JSPL, and Sajjan Jindal, the promoter, chairman and managing director of JSW Energy, are brothers. "The consideration price is supported by an independent valuation and hence is at an arm's length," it said. There were 12 suitors for the Tamnar plant, Uppal said, adding the company followed a transparent process for the sale.

Sajjan Jindal's plan to grow its power business inorganically would continue, as talks with Monnet Ispat and the Jaypee group continue for their respective power plants.

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