With Jaiprakash Power deal, Reliance Power could become India’s top hydel co

Anil Ambani group firm Reliance Power has pipped Adani Power’s Rs 11,700 crore offer to buy the entire hydro power portfolio of Jaiprakash Power for an estimated Rs 12,000 crore after Abu Dhabi National Energy Company (Taqa) pulled out out of the Rs 10,500-crore deal on Thursday.

Jaiprakash Power Ventures’ hydroelectric power portfolio comprises two plants at Kinnaur, Himachal Pradesh, and a third Vishnu-one in Uttarakhand. Together, the three plants have an aggregate capacity of around 1,800 megawatt with an asset life of 50 years.

The completion of the proposed buy-out would make Reliance Power the largest provider of hydroelectric power in the private sector in India with 7,800MW operating capacity by the end of financial year 2015.

In addition to the assets contemplated to be acquired under the proposed transaction, Reliance Power has hydroelectric power projects aggregating over 5,000 MW under development, of which 4,200 MW are located in Arunachal Pradesh, 700 MW in Himachal Pradesh and 400 MW in Uttarakhand. Hence the generation capacity and size of the assets being acquired would make it the largest M&A deal in India’s infrastructure and power sector, for which SBI Capital Markets is acting as advisors for the proposed transaction.

Reliance Power said Jaiprakash Power would utilise the proceeds from the proposed transaction to reduce its outstanding debt and deleverage its consolidated balance sheet. The group had a target of bringing down its debt by ₹15,000 crore by the end of the current fiscal. According to a report in the Business Standard, the Jaypee Group had Rs 28,164 crore of debt on its book as on March 31.

While the deal amount has not been disclosed, reports suggest that Reliance Power is paying a huge premium on the assets valued at around Rs 10,000 crore, which in turn could be negative for the company in the short term since RPower is already very leveraged and promoters may have to dilute stake to raise the required amount for the deal.

Reliance Power has a debt of Rs 30,000 crore on its books and cash of approximately Rs 3,000 crore. In all likelihood it will have to raise funds for the buyout from the buyout but since all three plants of Jaypee are operational, they should be able to service their debt.

The buyout will be EPS ( earnings per share) and ROE ( return on equity) accretive from day one, RPower told CNBC-TV18, adding that the deal will be closed within six months from now.

A report in the Economic Times says that Reliance Power offered Jaypee around Rs 12,300 crore, significantly higher than the Rs 11700 crore Adani was willing to offer for the same portfolio. “Adanis also had brought in some clauses — notably a Rs 700-crore break away fee if the deal does not materialise — which seems to have upset their negotiations,” the report added.

Investors, however, seem to have given RPower the thumbs up as the stock was up 1.6 percent in morning trade while JP Power soared to 5.80 percent on the Bombay Stock Exchange.