NTPC’s SJVNL acquisition likely this year
Himachal govt that blocked deal last year on board now
AFTER kickstarting consolidation in the oil sector, the government plans to undertake a similar exercise in the power sector this year, allowing state-owned NTPC to buy out the entire central government’s equity in hydropower generator SJVNL.
Sources close to the development told Financial Chronicle that the Centre has more or less addressed the issues that led to Himachal Pradesh government, the other minority stakeholder in SJVNL, blocking the deal last year. This has paved the way for the process to be completed in FY19, allowing NTPC to speed up hydropower generation after the failed attempt last year to acquire projects under a tendering process, they added.
SJVNL is a central sector joint venture PSU with 63.93 per cent equity holding with the Government of India, 26.93 with Himachal Pradesh and the balance 9.22 per cent with public. At Thursday’s share closing price of Rs 30.30 on BSE, the proposed share buyout may entail a total investment of about Rs 7,600 crore by NTPC.
The main objection to the deal came from Himachal Pradesh government last year as the state apprehended that the proposed acquisition would erode its equity stake and the state will hardly be left with any say in the new entity.
The state government owned just 25.52 per cent stake in SJVNL last year that has now increased to over 26 per cent. This will allow the Himachal Pradesh government to not only have a board position in the restructured entity but would also enjoy full voting rights.
“With the issue more or less resolved, NTPC can go ahead and acquire entire Centre’s equity in SJVNL. If Himachal Pradesh government also decides to sell its equity, the power major could pick up that as well,” said a government official asking not to be named.
Together with Himachal’s share in SJVNL, NTPC may have to fork out close to Rs 10,800 crore.
Confirming the development top government sources said that though the idea of this merger is to expand the non-fossil fuel power generation NTPC, it would be used as a first step to bring about consolidation in the sector. This could be done by creating a large public sector power behemoth, integrated vertically, with presence in mining, generation (both conventional and renewables) and even transmission at a later stage.
The merger will help NTPC build upon its hydro potential that has seen very slow progress so far. Out of its total installed capacity of about 53,651 MW, NTPC has a mere 800 MW of commissioned hydro generation.
SJVNL’s acquisition will immediately add 1,965 MW hydropower generation through three plants to NTPC’s portfolio. It also helps the generator further increase its generation by 8.7 billion units.
Officials from NTPC declined to comment on the news but company sources confirmed forward movement on the merger plan. The development has also helped SJVNL shares to gain 0.17 per cent on BSE to close at Rs 30.30 a share. NTPC shares lost 1.22 per cent to close at Rs 158.35 apiece. The development comes at a time when NTPC tender to take over hydropower projects did not elicit any response from project developers. Though the company intends to explore tender route once again, SJVNL deal could slow the process.
Sources said while the first phase of consolidation may involve NTPC buying out SJVNL from the government, in the second phase it could look at the possibility of bringing the country's transmission assets currently with Power Grid under its fold. Simultaneously, other stateowned assets in renewable could also be brought under NTPC umbrella. NTPC itself has a huge programme to add close to 15,000 MW of solar capacity to its portfolio.
Making NTPC as the power behemoth may not be a solitary example of the policy push given by the Modi government. Already, government has merged HPCL with ONGC and looking at more oil PSUs for mergers.
The government has also begun the process of consolidation in the banking sector by approving merger of five subsidiaries of State Bank of India with the parent. Also it is exploring merger of three general insurance companies to create a large entity before it is listed.
Creation of large integrated enterprises in different sectors is being considered to provide depth to profitable CPSEs so that they could figure among top companies globally. Adding scale also help companies to play a dominant position in global markets and get better bargains on acquisitions of assets and other resources.