JSW Energy-Jaiprakash Power deal may be shelved

JPVL lenders might not approve sale of 500 MW Bina plant, while JSW eyes new verticals


Mumbai, July 20:  

The ₹2,700-crore deal between JSW Energy Ltd and Jaiprakash Power Ventures Ltd (JPVL) for acquiring the latter’s 500 megawatt (MW) Bina thermal power plant in Madhya Pradesh may be shelved.

According to industry sources, JPVL’s lenders are unwilling to approve it.

JSW Energy had recently said in its annual report that the execution of the deal had been postponed to December 31, 2017, from the earlier deadline of May 31.

The acquisition process initiated in 2015 has been stalled due to strategic debt restructuring (SDR) invoked by JPVL’s lenders, including ICICI Bank, IDBI, Punjab National Bank and 20 other banks, in 2016. As of March 31, 2016, Jaiprakash Power, a subsidiary of Jaiprakash Associates, had a debt of over ₹22,000 crore. JPVL did not respond to requests for a comment.

When contacted, Prashant Jain, Joint MD and CEO, JSW Energy, told BusinessLine. that the company was still committed to the transaction.

RoE before market share

“We have been given to understand that the lenders have certain reservations, and Jaypee Group could not receive the lenders’ approval. So the transaction might not happen. But both companies are committed.”

Separately, JSW Energy has done a deal last year with Jindal Steel & Power Ltd (JSPL), controlled by Naveen Jindal, younger brother of Sajjan Jindal, for the acquisition of a 1,000 MW thermal plant in Tamnar, Chhattisgarh.

Jain said that this deal, which is on track, will take JSW Energy’s capacity from 4,531 MW beyond 5,500 MW.

However, this is just half of what the company has been envisioning – to achieve 10,000 MW capacity through organic and inorganic growth. Jain, who has been appointed as joint MD and CEO of JSW Energy last month, admitted the company’s driving force now is rather better return on equity (RoE) rather than appetite for capacity addition.

“Last year we were north of 6 per cent, we would like to see it in double-digit. This is more important because unless we have this kind of return for our stakeholders we don’t see it as sustainable business,” Jain said.

The company’s board has recently approved raising around ₹12,500 crore through subscribing to secured and unsecured, redeemable non-convertible debentures, in one or more tranches, and via equity options as well is by issue of masala bonds.

“ Jain said the assets that JSW Energy is ready to buy should be able to generate power at competitive tariff of around ₹2.5 per unit which is, according to him, a “new normal” for the industry.

Realising that renewable power is a future for India, according to Jain, JSW is likely to venture in the renewable sector as well.

“We are looking at grid management and energy storage as new opportunities”.

Hope for PPAs

JSW Energy reported weak performance last fiscal with sale of power declining by 32 per cent to ₹3,823.31 crore from ₹5,643.71 crore in FY-16.

On the back of increasing raw material cost and lower PLF, the company’s standalone profit for the year reduced from ₹1,182 crore in FY-16 to ₹194 crore in FY-17 and the EBITDA (before exceptional items) also declined to ₹1,233 crore from ₹2,560 crore in the previous financial year.

It is clear that mismatch between power supply and demand is at the core of the problems for JSW Energy as 35 per cent of its capacity does not have long-term power purchase agreements (PPAs), and hence, has to sell power at the spot market.

The tariffs there have dropped sharply – posing a challenge to the offtake of merchant power.

According to Jain, currently 64 per cent of company’s capacity is tied up with long-term PPAs and he expects this to grow by another 8-10 per cent in next 12 month time-frame. “I expect in next three-four years time-frame 100 per cent of existing capacity will be completely tied-up with long-term PPAs”, he added.

(This article was published on July 20, 2017)

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