Jindal brothers ink Rs 6500 crore power deal

Jindal Steel said the deal, to be completed by mid-2018, would help it meet its liabilities while JSW gained a foothold in coal-rich eastern India through the acquisition of the power plant in Chhattisgarh.

JSW Energy Ltd has agreed to acquire Jindal Steel and Power Ltd’s (JSPL) 1000 megawatt power plant in Chhattisgarh for a value reaching Rs 6,500 crore, putting an end to the recent stalemate regarding differences over valuations and catapulting the Sajjan Jindal-led company into one of the largest thermal producers in India.

Sajjan Jindal’s JSW Energy has agreed to buy a 1,000 megawatt power plant from his brother’s heavily indebted Jindal Steel and Powerin a deal valued at up to $976 million

JSW Energy, which is part of JSW Group, said late on Tuesday that it will form a special purpose undertaking and transfer Naveen Jindal-promoted JSPL’s thermal project to this new company, for an enterprise value of Rs 6,500 crore.

This value is linked to the completion of fuel and power purchase contracts for the power plant, currently in the process of being redrawn following the earlier countrywide cancellation of coal blocks by the central government.

The initial enterprise value of the power plant is estimated by JSW Energy at Rs 4,000 crore, which will be enhanced only after the power plant is assured of continuous fuel supply and of concrete purchase of the power produced, JSW Energy said.

“The transaction also contemplates payment of an interest bearing advance of Rs 500 crore pursuant to the receipt of approvals from the shareholders of JSW Energy and JSPL and the Competition Commission of India,” JSW Energy said in the statement.

Thermal power producers are typically allotted coal blocks by the government and also draw power purchase agreements, mostly with state electricity boards.

However following allegations of irregularities in allotment of coal blocks countrywide by the Comptroller and Auditor General of India in 2014, all such allotment were cancelled, leading to the loss in production for thermal power producers who could not source coal for power generation.

This led to large financial losses and default in payments on loans for most power companies including the JSPL and in an escalation of bad loans for banks who had lent to such companies.

The current transaction between the two companies is being widely seen as a bailout of JSPL by JSW Energy as both companies are promoted by the OP Jindal business family. Sajjan and Naveen are siblings. JSPL’s consolidated debt had totalled Rs 42,534 crore.

“The acquisition would fall within the provisions of related party transaction,” the JSW Energy statement said.

“…Mr Sajjan Jindal and Mr Naveen Jindal, promoter and chairman of JSPL being relatives, the respective promoters of JSW Energy and JSPL have an interest in the entity being acquired. The acquisition price is supported by an independent valuation and hence, is at arms length,” the statement added.

The transaction is scheduled to be completed by June 30, 2018.

After the acquisition, JSW Energy will have a total power generation capacity of 5,531 megawatts.

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