Monnet Ispat, on Thursday, signed a non-binding Memorandum of Understanding (MoU) with JSW Energy Ltd to enter into discussions to sell its controlling stake in the company's subsidiary, Monnet Power Company Limited.
In an interview with CNBC-TV18, Sanjay Sagar, CEO of JSW Energy said due diligence will take 45-60 days for completion.
Sources had reported that JSW is looking to pick up over 87 percent stake in Monnet Power for Rs 3,500 crore. Sagar said the company will decide on share and valuation only after due diligence process is complete.
"We are looking at inorganic growth very aggressively and this is just one of the projects which we found attractive," he said.
Monnet Power Company Limited is developing a 1050 MW coal fired thermal power plant at Malibrahmani in Angul, Orissa.
Below is the transcript of Sanjay Sagar’s interview with CNBC-TV18’s Kritika Saxena and Shereen Bhan.
Shereen: You are looking at picking up controlling stake in Monnet Power. In understand this is a non-binding MOU that has been entered into between both companies?
A: We have entered into a non-binding MOU for initiating a due diligence into the project. The decision whether to acquire a stake or not to acquire a stake will depend entirely on the outcome of the due diligence.
Shereen: By when do you anticipate this due diligence will be completed?
A: I would anticipate anything between 45-60 days.
Shereen: What is the motivation for you? We understand that motivation for Monnet is to try and bring down its debt, but what is the motivation for JSW to consider looking at this particular asset? You have of course been on an inorganic growth path, but how does this fit into your current portfolio and scheme of things?
A: I would prefer to answer that question after we have completed the due diligence and have taken a decision to acquire it.
Shereen: There must be something that is compelling you to go through with the due diligence in the first place?
A: We have sort of carried our preliminary due diligence on half a dozen projects. In this case, we decided to sort of do it after signing an MOU. That is the only difference.
The decision whether to acquire the project or not is yet to be taken. At this moment, I don't think my motivation would really matter because the motivations are the same as with any other project.
We are looking at inorganic growth very aggressively and this is just one of the projects which we found attractive.
Shereen: So have you given up on the other projects that you were in preliminary stages of due diligence. You talked about two dozen other projects that you were looking at or is this now the only project where due diligence is currently on?
A: Not at all. We are looking at quite a few projects at the moment. So, we will decide after we have completed the due diligence on five or six projects. We will probably pick and choose a few of them, two or three, maybe.
Shereen: What is it that is going to drive that decision? What is it that you will be looking at from a due diligence perspective, from an asset perspective, from a return on investment perspective that will help you make up your mind, will help you identify which one you should go for?
A: The technical aspects of the assets, of course the return on investment and also the timeline for completion of the project, the ultimate completed value of the project - these are the various things we will look at.
Kritika: Following up to Shereen's question the sense that we had gotten earlier from our sources were the 85.6 percent was on the block and Monnet was talking to multiple players. Can you confirm the exact amount in discussion for and the valuation at that point? In March, we had understood it was around Rs 3,500 to Rs 4,000 crore. Is the valuation around this figure?
A: We have not spoken to Monnet about any valuations as such. The valuation will be sort of arrived at once we have completed the due diligence and looked at the various aspects of the project. At the moment, we have not spoken to them about any probable valuation also.
Kritika: But the controlling stake is above 80 percent?
A: Controlling stake technically is about 51 percent, but we would probably be going in for a higher stake. I cannot confirm the exact percent to you at the moment, but we would be going in for a fairly higher stake.
Kritika: There were two other players that were seriously looking. In fact one of your immediate peers that was almost in the final race along with you. Is it fair to say that all the other players have now called off discussion and you will be the exclusive player?
A: I don't think I can answer that question. I suppose Monnet should be in a better position to answer that question.
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