The Reliance Power’s proposed acquisition of Jaiprakash Power Ventures’ hydro power portfolio is delicately poised, as the two companies work out finer details to close the estimated ₹12,300-crore deal in the next six months. But the stock markets gave a thumbs up to the deal.

Shares of all three stakeholders — Reliance Power, Jaiprakash Power Ventures, and its parent Jaiprakash Associates rose on Monday, a day after the MoU was inked.

Two points of view

Those involved in cracking the deal adopted a cautious approach stating that there is many a slip between the cup and the lip. However, those associated with Reliance Power sounded confident about closing the deal on the grounds that “if one knows where the funds are coming from, then other issues become miniscule.”

Reliance Power got active immediately after Abu Dhabi National Energy Company (Taqa) backed out of the deal, nearly 10 days ago.

Largest power generator

Pankaj Sharma, analyst with UBS, in a research note, said: “We believe that if the deal concludes it will be positive for Reliance Power as the assets are one of the best operational hydro assets in the country. The assets could make Reliance Power the largest hydro-electric power generator in the private sector.”The deal, when concluded, will give the company operational capacity of 1,800 MW.

Reliance Power is currently developing 12 hydro projects with an aggregate capacity of 5,292 MW with an investment of around ₹50,000 crore.

Sources close to the development said Reliance Power will have to make an equity payment of only around ₹3,000 crore even though the deal is valued at ₹12,300 crore. This is because Reliance Power will assume the debt of around ₹9,000 crore which the three projects have. The debt will also be re-financed with cheaper loans.

Internal accruals

“Out of the ₹3,000 crore equity payment to be made, nearly ₹1,500-2,000 crore will come from internal accruals,” the person close to the development said.

“Prima facie we think that the deal is a win-win for Jaiprakash Power Ventures and Reliance Power.

“The deal solves the near-term cash flow issue for the firm and will add assets which help Reliance Power boost its earnings per share and return on equity while also improving its engineering, procurement and construction capabilities of Reliance ADAG group,” said Sumit Kishore of JP Mogran in a research note.

Kishore added that Reliance ADAG group’s EPC capabilities will improve as a result of the deal, as 2,800 employees of the three hydro projects will join Reliance Power. The deal not only helps Reliance Power gain operational hydro power plants,

it also helps the Jaypee group meet its target of reducing debt by around ₹15,000 crore by the end of fiscal 2015.

comment COMMENT NOW