Adani Power has bought Hyderabad-based Lanco Infratech’s Udupi power plant at an enterprise valuation of Rs 6,000 crore (Rs 60 billion).
While Adani will take over the plant’s Rs 4,000 crore (Rs 40 billion) worth of debt, Lanco will receive Rs 2,000 crore (Rs 20 billion) in cash, which it plans to use for lowering its debt.
This is the largest acquisition in the thermal power space. According to bankers, Adani Power pipped JSW Energy in the negotiations and announced the transaction within two weeks of starting talks.
Also, it is another large deal announcement in the power sector, coming within weeks of Reliance Power’s to buy the Jaypee group’s hydropower assets for a reported valuation between Rs 12,000 crore (Rs 120 billion) and Rs 15,000 crore (Rs 150 billion). The Jaypee-Reliance Power deal will close by the end of the year.
Incidentally, the Udupi plant acquisition is the Adani group’s second big takeover since it became clear a Narendra Modi-led government was coming to power at the Centre. Adani Ports & SEZ Ltd had announced on May 16, the day the general election results were declared, that it was buying Dhamra Port Ltd from L&T and Tata Steel for Rs 5,522.38 crore.
The Udupi transaction was announced after market hours on Wednesday. Earlier in the day, the shares of both Adani Power and Lanco Infra ended lower than their respective previous close on BSE.
While Adani Power lost 3.7 per cent to Rs 52 apiece, Lanco was down five per cent to Rs 8.53 a share.
The Udupi project has power sale agreements with Karnataka to sell 90 per cent of generated power and with Punjab for 10 per cent. But the unit has been facing operational issues that even led to stoppage of production in June, as Rs 1,800 crore (Rs 18 billion) of arrears from the Karnataka Electricity Board piled up. Also, Lanco, which was importing Indonesian coal to run the power station via NewMangalorePort, failed to lift the fuel from a ship berthed at the port.
Lanco had put the power plant on the block two years ago, aiming to use the proceeds to lower its consolidated debt (Rs 35,000 crore as of March this year). The company went for a Rs 7,000-crore (Rs 70 billion) corporate debt restructuring in December last year, with Rs 2,500 crore (Rs 25 billion) as priority loan from lenders.
For the Adani group, this is a big step forward in the power sector. In April this year, the Adani group announced it had become the largest private power producer in India, with an overall installed capacity of 8,620 Mw.
The group, controlled by billionaire Gautam Adani, is planning to concentrate on the Indian infrastructure sector and has put its loss-making coal terminal in Australia for sale at a reported valuation of $2 billion.
In its vision statement, Adani Power, which also operates the 4,620-Mw Mundra ultra mega power plant, has set a goal of achieving 20,000 Mw of operational capacity by 2020.
Lanco’s Udupi plant had also signed an agreement with the state government for a further expansion of 1,320 Mw. The first unit of the plant, with a capacity of 600 Mw, was commissioned in November 2010, while another 600-Mw one in January 2011.
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