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JSW Energy Ltd, part of the $11-billion Mumbai-based Sajjan Jindal Group, is set to acquire Lanco Infratech's 1,200 mw Udupi Power in coastal Karnataka for about INR 5,700 crore, inclusive of INR 4,500 crore debt and equity value of INR 1,200 crore, two persons familiar with the development. This would be the first acquisition of such magnitude in the thermal power space in which a domestic firm is acquiring another fully commissioned power project.

So far, the two deals that were announced in the recent past were either smaller in size or at the implementation level, while the acquirers in both instances were foreign firms. On April 23, the first to report that JSW Energy and Malaysian company 1 Malaysia Development Bhd had emerged the front-runners to acquire Lanco's coal-fired Udupi plant. Subsequently, on June 25, that JSW Energy was keen to acquire the power plant, even though the project was shut down amid a payment dispute between the operator and the state government.
 

Debt-laden Lanco disposing assets

The deal marks the continuing revival of interest in India's power sector after several years, during which projects got stuck in limbo due to lack of fuel supplies and pending clearances, among other reasons. The outlook has improved with the election of the Narendra Modi government, which has pledged to get badly needed infrastructure projects moving again as part of its economic revival agenda.

In December, French energy company GDF Suez SA acquired a 74 Percent stake in the 1,000 mw thermal power project owned by Meenakshi Energy and Infrastructure Holdings in Andhra Pradesh. Of this, only 300 mw is operational while 700 mw is under implementation. It was reported that the French company paid INR 650 crore for majority stake. In February, Singapore based Sembcorp Industries picked up a 45 Percent  stake in NCC Power Projects, which is currently building a 1,320 mw coal-fired power plant in  in Andhra Pradesh, for INR 848 crore.

If the deal with JSW goes through at the valuation cited, Lanco will take a hit of about INR 400 crore on its investment as it had contributed INR 1,600 crore toward equity in Udupi Power, which is a wholly owned subsidiary of Lanco Infratech. Udupi Power is an imported coal-based thermal power project in the Karnataka district of the same name.

Cash-strapped Lanco Group has been looking to dispose of assets for quite some time as it seeks to slash debt of a little over INR 36,000 crore. Last December, in what came as a major relief for Lanco, a consortium of lenders led by IDBI Bank restructured INR 7,700 crore of loans and released INR 3,500 crore toward working capital to allow it to resume engineering operations. The transaction with JSW Energy would help the company, owned by L Madhusudan Rao, pare debt to about INR 30,000 crore.,A  Lanco Infratech spokesperson said: "No comment."

A JSW Energy spokesperson said: "The company continues to evaluate various opportunities to secure raw material resource as also growth opportunities; however the company is not in any conclusive discussions for any particular project." The cash-rich JSW Group is also said to be in discussions with the Jaypee Group to acquire its power assets, reflecting market sentiment that consolidation will drive the beleaguered power sector in the country.

Source-On Request