Mumbai: Sajjan Jindal-led JSW Energy Ltd is in advanced talks to buy a power plant owned by Jindal Steel and Power Ltd, controlled by his younger brother Naveen, said two people directly involved in the discussions.
“The deal is valued at more than Rs.5,000 crore and is to be announced before the 31st of this month,” said one of the two people cited above.
The sale of the 1,000 megawatt (MW) power plant in Chhattisgarh will help the struggling Jindal Steel and Power to meet interest payment obligations and pare overall debt. Jindal Steel, which has reported loss for five quarters in a row, had consolidated debt of over Rs.42,534 crore as of 30 September.
The Chhattisgarh plant is operated by Jindal Power Ltd, a unit of Jindal Steel.
“The debt on Jindal Power’s books is much less than what all of its assets together value. A deal for the power assets will help the parent company access more cash to ease out debt woes on the steel business,” said a senior steel analyst who declined to be identified.
Steel makers in India have been hurt by a steep fall in realizations because of the cheap imports from China, Japan, South Korea and Russia.
Both people cited above said that the deal was discussed at the JSW Energy board meeting on Monday.
A spokesperson for JSW Energy, which has been on the lookout for distressed power assets, denied that it is in talks to buy any particular asset.
“JSW Energy Ltd continues to evaluate various growth opportunities. However, the company is not in specific discussions for any particular project,” said the spokesperson for JSW Energy.
Jindal Steel & Power declined to comment on the sale of the Chhattisgarh plant but said the company is evaluating various options to strengthen its balance sheet.
On Monday, Reuters cited Jindal Steel chief executive officer Ravi Uppal as saying “that a deal is being negotiated.”
Reuters said the deal may be announced as early as this week.
On 18 March, The Economic Times first reported the talks between JSW Energy and Jindal Steel for the 1,000 MW power asset.
Ratings agency Crisil Ltd has rated Jindal Steel and Power’s debt as default, citing delayed payment of interest on term loans due to weakened liquidity. On 11 March, Credit Analysis and Research Ltd (CARE) downgraded JSPL’s debt instruments to a default rating.
In an interview on 10 March, Uppal said the company will try to sell stakes in certain units of its steel business, set up joint ventures with companies in Asia and Europe and seek a buyer for its power assets in India, in an effort to pare debt.
Uppal also confirmed there were delays in meeting interest payments due to the stress in its steel business.
The second of the two unidentified people said that the Chhattisgarh plant is the only power asset the company is looking to sell immediately. “No other power asset from Jindal Power is on sale,” said the person.
Jindal Power has a combined capacity of 3,400 MW.
For JSW Energy, the deal will help increase its capacity from the current 4,531 MW to 5,531 MW.
JSW Energy has been in discussions with Jaiprakash Power Ventures Ltd for its 500MW Bina thermal power plant in Madhya Pradesh. JSW Energy is also in talks with Monnet Ispat and Power Ltd to acquire its unit Monnet Power Co. Ltd, which is developing two coal-fired thermal power plants with a total capacity of 1,050 MW in Odisha.
The two people cited above said that deal discussions for both these assets are still under consideration.
“We have seen stressed sales in the power sector in the past and we will see some more,” said Harish H.V., a partner at Grant Thornton India Llp, a financial advisory.
“The valuation will depend on how much capacity has long term agreements in place and what is the price of that. It will also depend on how much can the debt related to the particular asset be restructured if the asset is a stressed one,” he said.
Sale of the 1,000 MW power plant to JSW Energy will help Jindal Steel and Power pare overall debt. The acquisition are becoming common in Indian power industries. It is the best way to increase the installed capacity of the firm.