Sajjan Jindal-led JSW Energy has agreed to buy his brother Naveen Jindal's debt-laden Jindal Steel and Power's 1,000 MW power plant in Chhattisgarh for an enterprise valuation of Rs.6,500 crore.
The brothers have decided to seal the deal on an arm's length basis — in which the buyers and sellers of a product act independently and have no relationship to each other.
They arrived at the acquisition price through an independent valuation and the buyout will be subject to statutory and shareholders' approval. The deal is expected to be completed by June 30, 2018.
As per the definitive agreements the cost of the deal is linked to an initial enterprise value of Rs.4, 000 crore, which may be increased to Rs.6, 500 crore if pre-agreed fuel supply and power off take arrangements are met.
Under the terms of the deal, an interest bearing advance of Rs.500 crore is to be paid after shareholders' approval of both firms and the nod from competition watchdog Competition Commission of India.
Everbest Steel and Mining Holdings Limited (ESMH), a special purpose acquisition entity, has been created where the business undertaking of the JSPL plant will be transferred and JSW Energy will buy entire shareholding of ESMH, thereby enhancing its power generating capacity to 5,531 MW.
"This (the acquisition) will diversify JSW Energy's presence towards the eastern region of the country and in the state of Chhattisgarh, which is rich in coal reserves. The transaction is structured to be value-accretive to the shareholders of the company immediately upon consummation," according to a statement issued by JSW Energy.
For JSPL, which has a net debt of Rs.46,000 crore or over seven times of its market capitalisation of Rs.6,331 crore, this divestment is part of its asset monetisation plan to generate stable cash flows to be in position meet all liabilities and emerge as sustainable company by end of this fiscal.
Besides, this deal will be a relief for State Bank of India, with significant exposure to JSPL, as it will get a part of the money and was trying hard to broker the deal between Jindal brothers.
"This acquisition demonstrates JSW Energy's strategy to augment its existing portfolio with superior assets having potential long-term value creation for its stakeholders," Sanjay Sagar, joint managing director & CEO of JSW Energy commenting on the deal said.
For JSW Energy, this marks completion of the second power asset acquisition in less than a year, the last being two hydropower projects.
Source- The Hindu