JSW ENERGY FINDS ITSELF IN ACCIDENTAL LENDER ROLE

Firm had extended loans to two acquisition targets and deals are now in slow lane

Two of JSW Energy’s big acquisition targets in the power sector are moving away from possible deal closure and the company may be left in the uncomfortable role of a lender to two stressed assets.

JSW Energy’s accidental journey from potential buyer to lender started more than a year ago in 2016. The year saw the power producer agreeing to acquiring Jaiprakash Power Ventures’ Bina power plant in Madhya Pradesh and Jindal Steel and Power’s Tamnar power plant in Chattisgarh. In due course, JSW Energy also extended loans to both companies — ~1,000 crore to Jaiprakash Power and ~500 crore to Jindal Steel and Power.

This exposure is now slowly turning into a concern as the deals face closure issues. The concerns are larger over JSW’s exposure to Jaiprakash Power than to Jindal Steel and Power.

An email sent to JSW Energy on Wednesday requesting security details on these loans remained unanswered.

“We see that good organisations are committed towards it, but the probability of getting the transac- tion through is going lower and lower,” Prashant Jain, the newly appointed joint managing director and chief executive officer of JSW Energy, said in an earnings call last week.

Jaiprakash Power Ventures is going through a strategic debt restructuring (SDR) process and Jindal Steel and Power also figures on the stressed asset list of the Indian banking system. This has left analysts and industry experts concerned about debt servicing and repayment of the loans in the event of the deals not fructifying.

“The company says they are sure of recovery, but surely it is a concern,” said an analyst with a domestic brokerage firm.

Similar concerns were raised in an analyst call last week referring to JSW’s seniority on the list of lenders to Jaiprakash Power. For now, the company has assured its investors, there is no reason to worry. “When it was given, there were several rounds of discussions both with JPVL as well as lenders and we will get priority treatment to this loan in terms of servicing,” a company executive told analysts.

“JSW is stuck between a rock and a hard place,” said Amit Tandon, founder and managing director of proxy advisory firm IiAS. Tandon added the company might not have anticipated the deals would hit a rough patch when the loans were agreed to.

“As an investor, one is investing in a power generation company. Why should it use its cash as a lender or a life-support system for another company?” said a second analyst with a domestic brokerage firm who did not wish to be identified.