1 July 2019: JSW Energy, part of the Sajjan Jindal controlled JSW Group, has stolen a march over metals and mining titan Vedanta Ltd in the bid to acquire insolvent firm Ind Barath Energy Utkal Ltd (IBEUL), a subsidiary of the Hyderabad-based Ind Barath Power Infra Ltd (IBPIL).
IBEUL has a 700 Mw coal-fired pit-head power plant near Jharsuguda (Odisha). The company has been admitted to the Hyderabad bench of the National Company Law Tribunal (NCLT) under Insolvency & Bankruptcy Code (IBC). Both JSW Energy and Vedanta are in the race to acquire the insolvent firm.
Initially, both JSW Energy and Vedanta were neck-to-neck in bidding for IBEUL. Both companies offered an upfront amount of Rs 1 crore per Mw. But of late, JSW Energy has sweetened the offer and hiked its upfront offer to Rs 845 crore against Vedanta’s Rs 700 crore, a source familiar with the development said.
The resolution of IBEUL, a stressed power asset is expected to be completed by September this year.
For JSW Energy, the takeover of IBEUL facility sounds strategic since the company is scouting for such portfolios to boost its inorganic growth. While the company is keen to expand its hydroelectric and renewable portfolios organically, it is banking on the inorganic route to build up thermal power. Moreover, JSW Energy does not need external capital to fund its stressed power deals as it has ample internal accruals for such buy-outs.
The country’s power sector is awash with stressed assets. The ailing power assets, fired by coal and natural gas, add up to 34 with an installed capacity of over 40,000 Mw and are saddled with debt mounting to Rs 1.74 trillion, according to a report by a Parliamentary standing committee.
However, the resolution of these assets is beset with challenges since most of them lack firm coal linkages and a long-term power purchase agreements (PPA). In contrast, IBEUL is an attractive bet as it boasts of both. It has coal linkage from Mahanadi Coalfields Ltd (MCL), a Coal India subsidiary and PPAs stitched with the governments of Odisha and Tamil Nadu.
IBEUL is almost entirely owned by Australia-based asset manager Macquarie Group which has over 99 per cent stake in the company. Paradoxically, it was Macquarie which dragged IBEUL into NCLT in June 2018 owing to a delay in commissioning of the project. In 2015, Macquarie had lent Rs 750 crore to IBEUL against convertible bonds. Two years later, Macquarie is believed to have converted the debt instrument into equity, thus acquiring a majority ownership. IBEUL’s promoters had contested Macquarie’s petition in NCLT, arguing that the investor being a majority shareholder was not eligible to file for insolvency proceedings.
IBPIL, the Hyderabad based diversified power generator and parent company of IBEUL, has 2865 Mw of assets under development in conventional and non-conventional energy.