Adani Power’s Mundra plant slump sale lacks lenders’ NOC

Ksenia Kondratieva Mumbai | Updated on January 11, 2018


Board of Approval defers decision on transfer proposal; sale subject to statutory and regulatory nod

Adani Power’s plans to separate its ailing asset, the 4620 MW coal-based power plant in Mundra, by slump sale to its subsidiary, Adani Power (Mundra) Ltd, will take time as the transaction has not got necessary regulatory approvals.

In its meeting held on July 3, the Board of Approval (BOA) for Special Economic Zones (SEZ) under the Commerce Ministry deferred the proposal for transfer of asset made by Adani Power, which is a co-developer of Adani Ports and Special Economic Zone Limited (APSEZ). The Mundra plant provides power for the captive consumption of APSEZ.

The reason for turning down the proposal is uncertainty over the lenders’ approval of the transaction, the BOA said. It also noted the transaction does not seem to involve transfer of the debt. “The Board, after deliberations, decided to defer the proposal and directed APSEZ to ascertain whether NOC of lenders had been taken as it was noted that the proposed transfer of the thermal power plant in the APSEZ… was being done without transfer of liability of debt,” the BOA’s “minutes of meeting” document reads. The BOA’s approval is mandatory to make the demerger effective as per the extant SEZ Act and rules.

Restructuring exercise

On June 6, the Board of Directors of Adani Power approved the slump sale of Mundra power generating business undertaking to its subsidiary.

“This sale is for a lump sum consideration, without values being assigned to the individual assets and liabilities,” the regulatory filing said, noting that the sale shall be subject to statutory and regulatory approvals.

According to the filing, the liabilities are included in the transaction along with assets.

In the detailed description, the company noted that transferring the power generating asset into a separate company will “create a clean platform” and allow Adani Power to source its funding efficiently for investing in capacity expansion of its subsidiaries and/or acquisition of assets.

When approached for comment, Adani Power spokesperson said the company’s Board has approved the demerger of Mundra project with associated assets and liabilities, including bank loans. He added the transaction is subject to necessary approval and consent of stock exchanges, lenders, shareholders and NCLT.

The spokesperson confirmed that the BOA of SEZ had deferred the proposal until no-objection certificate is received from the banks.

“We have approached the lenders and once an approval is granted we will take the process forward as required,” he said.

An analyst with a leading rating agency told BusinessLine that if the transfer of Mundra project to the separate subsidiary would take place, the corresponding liabilities should also be moved.

“However, it was not clear up to which extent, what portion of the debt goes off Adani Power’s balance sheet,” he said, adding that only after having clarity on this it will be possible to estimate the impact the transaction will have on Adani Power.

Rescue attempts

The decision for slump sale came in the backdrop of Adani Power, Tata Power and Essar Power making attempts to rescue their ailing thermal power projects operating on imported coal.

The Supreme Court, in April, denied Adani Power and Tata Power the right to charge compensatory tariff for their power plants due to higher international coal prices following changes in Indonesian regulation, setting aside an earlier decision of the Central Appellate Tribunal for Electricity.

The decision worsened the scenario for these power companies forcing them to offer the controlling stake in their projects to Gujarat Urja Vikas Nigam Ltd (GUVNL), the parent body of state Discoms, for a nominal price of ₹1.

“Consequent to outcome of the Supreme Court judgment, we have engaged with the stakeholders, including GUVNL, for possible remedial measures for long-term sustainability of the Mundra plant and various options are being explored,” Adani Power’s spokesperson told BusinessLine in June, adding that it will be premature to comment on the likely sale of stake in the plant.

Published on July 11, 2017

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