7,000 crore Deal likely to involve sale of operational power plants; acquirer may have to pay up to
A joint venture between Tata Power, India’s second-biggest private power producer and ICICI Venture, has begun talks to buy out some power assets of Avantha Power as the cash-strapped Thapar group considers asset sale to reduce its debt.
Two people with direct knowledge of the matter said officials from both sides have met to discuss the issue and that the deal is likely to involve the sale of operational power plants. “We had several meetings with the Thapar group officials for the purchase of the power assets,“ one of the two persons quoted above said. “It’s a good asset. But we are yet to sign any term sheet to start due diligence as talks are in early stages,“ the person added.
A Tata Power spokesperson said that it does not have any new information to share. “The company has been on record to say that it continuously looks at various opportunities to maximize shareholder value,“ Shalini Singh, head, corporate communication at Tata Power, said in an email.
Billionaire Gautam Thapar, which has interest in electrical goods, engineering and paper, owns 75% stake in Avantha Power through a privately held family firm Avantha Holding Ltd (AHL). AHL owns 42.4% in listed power equipment company Crompton Greaves and close to 75% in Avantha Power, held directly and through Crompton Greaves.
The buyer will have to pay anywhere between 6,000 and 7,000 crore to acquire the company with an operating capacity of 1260 MW. Avantha Power has another 1260 MW under various stages of construction.
The group has been trying to reduce its debt by selling some assets. It hived off the consumer goods business of Crompton Greaves and last year it sold its chemical business to Aditya Birla Chemicals for 133 crore.
“Avantha group does not comment on market rumours and speculations,“ Shravani Dang, vice president & head of corporate communications, Avantha Group, said in an email.
Tata Power, which has been seeking to expand capacity through acquisition, has been in talks to team up with ICICI Venture to take over troubled power plants that have been short circuited by regulatory uncertainties, fuel supply disruptions, low demand and high debt, ET had reported on October 10.
The plan was to have ICICI Venture responsible for organising both debt and equity funding for these acquisitions with Tata Power handling the operation and maintenance of these plants, post acquisition as an asset manager. Tata Power with presence in generation, transmission and distribution will use its expertise to resuscitate troubled power assets. Analysts tracking the power sector say the Tata group company has enough financial resources to buy Avantha Power and can reduce risks. “Though Tata Power’s debt-equity ratio is above 2, it still has the ability to acquire a good asset as the Tatas have the wherewithal to raise funds,” says Sanjeev Zarbade, research analyst at Kotak Securities, a local brokerage.
“Acquiring a ready made plant will help company minimise risks.“ “With the power sector poised for a rapid growth, capacity additions will be a good longterm strategy,“ he added.
The latest development comes after Avantha Power dropped plans to launch an initial public offer to raise funds. The company was originally planning to raise . 1000-1500 crore through a public ` offer, but slow down and market volatility pushed them to scrap the plan.
Big power companies are rushing to snap up assets after a slowdown in infrastructure, heavy debt and regulatory uncertainty resulted in a pile-up of incomplete power plants with inadequate fuel linkages. Banks have refused to lend more money and wariness among investors means that the companies cannot take advantage of a recent bull run in equity markets.