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19Th July 2016
 |
Jaiprakash Power
(The Total Investment & Insurance
Solutions)
|
Sajjan Jindal-promoted JSW Energy has agreed
to acquire 100% stake in the debt laden Jaiprakash Power Venture’s 500MW Bina
Thermal Power plant (2x250 MW) based at Sagar in Madhya Pradesh. The deal is
expected to be finalised by May 2017, which may get extended subject to delay
in getting regulatory approvals.
The project cost of the
Bina power plant is about Rs3,470 crore. However, JSW Energy has managed to
acquire it at around 22% discount. "While the relevant issues related to
offtake and declining merchant prices still exists, we believe that JSW
Energy’s acquisition cost at a steep discount, at Rs2,700 crore against
project cost of Rs3,470 crore, could provide high returns in case of
improved plant load factor (PLF) going ahead," says Emkay Global Financial
Services Ltd in a report. The Total
Investment & Insurance Solutions
The project has 70%
power purchase agreement (PPA) with Madhya Pradesh Discom (65% at regulated
basis and 5% at variable cost). Balance 30% is exposed to merchant market. The
fixed cost for the project comes to about Rs2.34 per unit. As per the PPA
terms, the project is entitled to recover the fixed cost on the availability of
80%. The Total Investment &
Insurance Solutions
According to Emkay report, the project
historically has been operating at subdued PLF of about 35%-50% over FY14-FY16
and during first quarter of 1FY17 the PLF was around 6%. The subdued
performance was primarily due to back down by state discoms. This has impacted
the project profitability.
JSW Energy plans to fund the acquisition
through 75:25 debt to equity (D/E) ratio. "Thus, assuming 80% PAF and Nil
merchant sales, the return on equity (RoE) for the entire project works out to
be 16.7% and any merchant realisation above variable cost will lead to
incremental RoE," the research note says.
Emkay finds the deal positive for JSW Energy,
however, it says till the finalisation of appointed date, the impact of the
deal cannot be factored in to its financials at present. "The fixed cost
of Bina Project for JSW Energy will be significantly lower than the normative
fixed cost for tariff calculation and ex RoE, due to its lower acquisition cost
and debt restructuring. Calculation of variable cost is not relevant due to the
PLF as which the plant operates," it concluded.
Earlier in November
2014, JSW Energy acquired two hydropower plants, the 300 MW Baspa-II and the
1,091 MW Karcham Wangtoo projects, both in Himachal Pradesh for Rs9,700 crore
from Jaiprakash Power Ventures. The
Total Investment & Insurance Solutions
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