Will Sajjan Jindal come to the rescue of Jaypee?

Whether Sajjan Jindal will prove to be knight in shining armour for Manoj Gaur’s debt laden Jaiprakash Power Ventures, which is also plagued with regulatory issues only time will tell.

While Jindal himself has expressed confidence in closing the estimated ₹12,000-crore deal, industry observers are cautious in their response voicing concern over the assets.

Within three months two high profile buyers — Abu Dhabi National Energy Company (Taqa) and Anil Ambani’s Reliance Power — have backed out of Jaiprakash Power Ventures Ltd (JPVL) deal at the due diligence phase itself. While reason for Taqa backing out was never made public, RPower blamed regulatory issues plaguing the JPVL 1,091 MW Karcham Wangtoo hydro power project, the largest of the three projects being acquired as part of the nearly ₹12,500-crore deal.

In less than 24 hours of Ambani calling off the deal, Jindal’s JSW Energy stepped in, and announced on September 25, the signing of agreement with JPVL for acquiring two hydro-power and one thermal project.

Violations in Karcham Wangtoo project have been pointed out by Central Electricity Authority, Central Electricity Regulatory Commission, as well as by State Government of Himachal Pradesh. The authorities have found that the project has violated norms and is producing 1,200 MW as against its techno-economic clearance to generate 1,000 MW. The project is also awaiting fixation of the provisional tariff by the Central Electricity Regulatory Commission.

Apart from the regulatory issues, the Bapsa II and Karcham Wangtoo projects also come with their own debt burden. But, acquiring a debt ridden asset and turning it around may not be that big an issue as tackling the regulatory hurdles will be for Jindal, observers said.

While JSW did not comment on the modalities of the deal, but those in the know said that JSW Energy is expected to take on the debt of the projects even while making an additional cash payment to Jaypee.

Four years ago, Jindal-promoted JSW Steel acquired debt-laden Ispat Industries. It took nearly three years to turnaround the acquisition before it was finally merged into JSW Steel.

If JSW Energy takes on the debt of the Jaypee projects as part of the acquisition, it would almost triple its own debt. However, the two hydro projects of JPVL’s alone are expected to add around ₹1,500 crore to JSW Energy’s annual revenues. JSW Energy had long-term and short-term borrowings of ₹4,384 crore, as on March 31, 2014.

Edelweiss Financial Services said given that JSW Energy has no-near term growth plans, the acquisition would allow for inorganic growth. With Jaypee’s Bina thermal project included in the deal, JSW Energy would add 1,891 MW of capacity to its existing 3,140 MW.

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