The debt-laden Jaypee Group is close to selling two of its three operating hydroelectric projects to a consortium led by Abu Dhabi National Energy Co. PJSC, known as TAQA, and including a Canadian pension fund for at least $1.5 billion, according to two people close to development.
TAQA will buy a 51% stake in the projects, with a Canadian pension fund purchasing 39% and IDFC Alternatives Ltd, the private equity arm of infrastructure finance company IDFC Ltd, taking the remaining 10%, said the two people, who both spoke on condition of anonymity.
The transaction, which will raise funds for the Jaypee Group to pare more than Rs.50,000 crore of debt, could help accelerate consolidation in India’s beleaguered power sector, burdened by debt, delays in project approvals and fuel shortages. Slowing economic growth has hit power demand from industrial consumers in some parts of the country.
“The documentation is in progress. This will be the first exposure of this large Canadian pension fund in India,” said one of the people.
The person did not reveal the name of the Canadian pension fund.
It’s not Canada Pension Plan Investment Board (CPPIB), which forged a $200 million venture with real estate developer Shapoorji Pallonji Group last month to invest in commercial real estate in India, said the two people cited earlier. CPPIB took an 80% stake in the venture with Shapoorji Pallonji holding the rest.
The transaction, one of the largest hydro power deals in the country, is likely to be signed by this month end or early next month. The formal closure of the deal, with all regulatory approvals, may take up to three months, the two people said.
The Economic Times reported on 9 September that the Abu Dhabi Water and Electric Authority had emerged as the frontrunner to buy the two power assets from Jaiprakash Power Ventures Ltd, a part of the Jaypee Group, and that TAQA will possibly be the vehicle for the acquisition.
The power plants on the block are the 300 megawatts (MW) Baspa II and 1,000MW Karcham Wangtoo projects located in Himachal Pradesh.
“The Jaypee Group would be selling its 100% stake in two power plants and the proceeds would be used for bringing down the debt. This would be a landmark deal,” said one of the persons cited above.
Originally, the Jaypee Group wanted to sell off all its three projects, including the 400MW Vishnuprayag project, but the plant suffered damage in the cloudburst and subsequent floods that hit Uttarakhand in June.
Consulting firm EY, formerly known as Ernst and Young, is advising the Jaypee Group. A spokeswoman for EY declined to comment for this story. Jaypee Group chairman Manoj Gaur also declined to comment. “We cannot comment on market speculations,” a TAQA spokesman said. A spokesperson for IDFC declined to comment.
In September, the Jaypee Group sold its cement plant in Gujarat to UltraTech Cement Ltd for Rs.3,800 crore as part of the efforts to reduce debt.
On 4 October, a Jaypee Group spokesman told that the group was committed to reducing its Rs.56,000 crore of debt by Rs.15,000 crore by end of the current fiscal year. So far, the group has reduced about Rs.5,300 crore of debt through the sale of the cement plant and from internal accruals.
TAQA, which means energy in Arabic, is no stranger to India. Apart from holding a majority stake in Nagarjuna Construction Co. Ltd’s Himachal Pradesh power plant, the company also operates a 250MW lignite-based power plant in the Neyveli region of Tamil Nadu and wants to scale it up to 500MW.
Rival power producers such as Nagarjuna Construction and Lanco Infratech Ltd are also in advanced talks with potential strategic and financial investors to sell majority stakes in their operational power plants as they seek to reduce debt.
In March, GMR Infrastructure Ltd sold its 70% interest in GMR Energy (Singapore) Pte Ltd to FPM Power Holdings Ltd for $600 million.
Nagarjuna Construction is in the process of reducing its exposure to the power business by selling stakes to one of the units off Singapore’s Sembcorp Industries. The company has already signed a definitive agreement with TAQA to sell its entire stake in Himachal Sorang Power Pvt. Ltd.
Lanco Infratech is in talks with potential strategic and financial investors to sell its stakes in three power projects to pare debt. Lanco Infratech had a net debt of Rs.35,835.4 crore on its books as of 30 September.
In November, G. Venkatesh Babu, managing director of Lanco Infratech, said the company management was also considering options such as inviting strategic investors, disposal of assets, and corporate debt restructuring.
“One can see a lot of action in the power sector as far as mergers and acquisitions are concerned; many PE (private equity) funds and sovereign funds are looking at the Indian power sector with a lot of curiosity as they feel valuations are attractive,” said Sanjay Sethi, executive director and head of infrastructure at Kotak Investment Bank.
In a report released on 18 December, EY said India needs 15,000-20,000MW of fresh capacity addition every year to sustain its economic growth, and to achieve this, $230 billion of investments is needed in the power sector in the next five years.
JPMorgan Asset Management invested $150 million in the Bhaskar Group’s Diligent Power Pvt. Ltd (a 2,520MW power portfolio) in May 2013. Singapore-based Sembcorp is looking to acquire a 100% stake in a 1,320MW coal-fired project in Andhra Pradesh to double its capacity in India, and French energy company GDF Suez SA has signed definitive documents to acquire a 74% stake in a 1,000MW coal-fired power project owned by Meenakshi Energy and Infrastructure Holdings Pvt. Ltd in Andhra Pradesh.
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