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Last Updated : Sep 08, 2015 04:47 PM IST | Source: CNBC-TV18

JP Power Ventures sells 2 hydro power plants to JSW Energy

The two companies have also entered into a binding Memorandum of Understanding (MoU) for JSPVL‘s 500 MW Bina Thermal Power Plant.

In a move to reduce its debt, Jaiprakash Power Ventures has concluded the sale of its two hydropower plants to JSW Energy. The two plants include Himachal Baspa Power Company Limited (HBPCL) assets, i) 300 MW Baspa- II HEP, ii) 1,091 MW Karcham Wangtoo HEP. They have been sold at an Enterprise Value (EV) of Rs 9,575 crore.

Further, JPVL has also paid a compensation of Rs 150 crores to HBPCL, with profit and loss from these plants accruing to JSW Energy from 1st September 2015.

In addition, the two companies have entered into a binding Memorandum of Understanding (MoU) for JP Power Ventures 500 MW Bina Thermal Power Plant.

Speaking to CNBC-TV18, Murtuza Arsiwalla of Kotak Institutional Equities estimates Bina Thermal Power Plant’s worth at Rs 3500 crore. 

He says with the sale of its hydro power plants, JP Group has sold a fair chunk of its assets from the earnings point of view as hydro power plants are high margin businesses, with no real cost.

This transaction will not impact JSW’s debt while JP Group’s debt would stand at around Rs 45,000 crore, he says. JP has a few assets left to be monetized but they are non-operational or are in their early stages, Arsiwalla adds.

On the deal, RK Bansal, Executive Director, IDBI says ICICI Bank has the maximum exposure to JP’s debt. Calling this JP Group’s 'debt reduction strategy', he says the group may further sell its cement plants.

The sale of these two hydro power plants will provide JP with an equity component, says he, adding, the bank has maximum exposure to JP Infra, which will be indirectly benefited from the deal.

Below is the transcript of Murtuza Arsiwalla and RK Bansal's interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.

Latha: If you have the press release with you - the first one is a conclusion of the deal that was entered into in November, the Rs 9,700 crore deal whereby the Himachal Baspa Power Company was sold. Now we understand that memorandum of understanding (MoU) has been signed for 100 percent stake in the Bina Thermal Power plant. Your thoughts for Jaiprakash Power Ventures, how much does it reduce its debt?

Arsiwalla: The 97 billion, which the first transaction went through, so assuming it takes over some amount of debt, so that is pretty much the asset consideration is what you should consider that the debt is reduced by because even the equity which goes in possibly in the form of cash could be use to pare down the debt. For the second transaction, the market speculated number is more on Rs 3,500 crore.

There was a section on the street which believed that the thermal plant comes with more issues versus the hydro plant which is more like annuity which would come in possibly at a steep discount to the capital course which does not seem to be the case at Rs 3,500 crore valuation.

Latha: Rs 3500 crore has not been confirmed by the press release just yet. So your assumption is that it would be a little less than that?

Arsiwalla: The market expectation was that the coal based Bina plant, given the issues around availability or around sale arrangements etc, would come at a discount to replacement cost; if Rs 3,500 crore, which the media houses were carrying would be true, then it would be not at a discount to replacement cost.

Latha: We have just got this press release from Jaiprakash Power Ventures Limited (JPVL) saying that they have completed the sale of Baspa Power Company Limited for enterprise value of 9,700, not news to you, and that an MoU has been signed with JSW Energy for selling the 500 megawatts Bina thermal power plant. How much does that reduce Jaiprakash Power\\'s debt you think?

Bansal: Basically, we have to look into the overall group debt reduction strategy. I am not fully aware of how much debt in JPVL will go down.

JPVL has been trying to sell two hydroprojects, which you are aware they sold it to JSW and keeping in with the cement plant sale to Ultratech. So, the overall strategy is to reduce the debt in the company and in the group overall.

And you also need to see that perhaps the projects which they are selling, should give them equity component. Otherwise if it is only going for debt then it doesn't help the group overall.

Latha: We don't as yet have that break up. Would you know?

Bansal: No, I am not aware fully. I am just seeing the detail on your screen only but I am aware that two hydroprojects will give them equity components substantially-- the money will come back to the group.

Latha: What is your own exposure? Is it to JPVL or is to associate companies?

Bansal: We have exposure to all three, in the sense, Jaypee Infra, Jaiprakash Associates and JPVL.

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First Published on Sep 8, 2015 01:49 pm
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