JSW Energy snaps up Jaiprakash Power's Bina plant at 22% discount of Rs2,700 cr

Sajjan Jindal-promoted JSW Energy has snapped up 100% stake in the debt laden Jaiprakash Power Venture's 500MW Bina Thermal Power plant (2x250 MW) at Sagar in Madhya Pradesh at a 22 per cent discount.

JSW Energy has managed to acquire it at Rs2,700 crore against project cost of the Bina power plant of about Rs3,470 crore – a discount of around 22 per cent.

"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 deal is expected to be finalised by May 2017, which may get extended subject to delay in getting regulatory approvals.

The Bina plant has 70 per cent power purchase agreement (PPA) with Madhya Pradesh Discom (65 per cent at regulated basis and 5 per cent at variable cost). Balance 30 per cent 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 per cent.

Reports say the project historically has been operating at subdued PLF of about 35-50 per cent over FY14-FY16 and during first quarter of 1FY17 the PLF was around 6 per cent. The subdued performance, which was primarily due to back down by state discoms, has impacted the project profitability.

JSW Energy plans to fund the acquisition at 75:25 debt to equity ratio.
 
''Assuming 80 per cent PAF and nil merchant sales, the return on equity (RoE) for the entire project works out to be 16.7 per cent and any merchant realisation above variable cost will lead to incremental RoE," the research note says.

"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 adds.

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.