JSW Energy, JSPL Differ on Valuation, Fail to Finalise Deal
JSW Energy had agreed to pay about .₹ 6,000 cr to JSPL for 1000 MW plant
New Delhi: Sajjan Jindal-controlled JSW Energy’s proposed acquisition of 1,000 MW power plant in Raigarh, Chhattisgarh, from Jindal Steel and Power, controlled by his younger brother Naveen, has hit a major road block, two people familiar with the development said.
“Serious differences have emerged from both sides in term of valuation and payment modality,” said one of the persons. “The transaction was expected to close on Wednesday and, in fact, JSW Energy had scheduled its announcement in the capital on Thursday,” he said. JSW Energy and Jindal Steel and Power (JSPL) now hope to finalise the transaction within a month, the sources said. “Since both sides have dug their heels, they decided to defer it for some time,” one of them said.
They blamed differences over valuation and upfront payment for the two companies’ failure to finalise a deal. “JSW Energy had agreed to pay about .₹ 6,000 crore to JSPL” when the two signed a memorandum of understand last month, the second person quoted earlier. But the company started squeezing the valuation by including riders, he said.
“Jindal Power should facilitate signing of power purchase agreement for 90% of the output of 1,000 MW power plant with various state electricity boards (SEBs), otherwise the valuation should be adjusted to about .₹ 4,500 crore, which was completely rejected by the Naveen Jindal group,” the person said.
Similarly, JSW Energy also refused to accept Jindal Steel’s demand for an upfront bank guarantee of .₹ 3,000 crore toward the transaction, said one of the persons quoted above. “They were willing to provide an upfront bank guarantee of only .₹ 500 crore and not .₹ 3,000 crore. This has serious impli- cation on JSPL as it is already in stretched situation and finding it difficult to meet lenders’ obligation in repaying interest as well as principal,” he said.
Upfront payment of .₹ 500 crore and balance after the completion of regulatory process would defeat the purpose for which the unit was being sold, one of the persons said.
In response to ET’s queries, a JSW Energy spokesperson said: “The queries raised by you are highly speculative in nature and we do not feel any need to respond to such unfounded queries.” A JSPL spokesperson said: “JSPL financials have been impacted due to the cancellation of coal blocks & payment of additional levy on coal of more than .₹ 3,300 crore in FY14-15 & FY15-16 as a result of a Supreme Court order. Considering negative financial results in the last 12 months, JSPL has been working with financial institutions/banks towards various options to meet our debt obligations. JSPL has an excellent track record in fulfilling all its financial commitments over the years. As already advised in our monetisation plans, JSPL continues to evaluate various options to monetise assets and improve cash flows to be in a much stronger position to meet all its liabilities and emerge financially stronger in FY16-17.” Delay in raising resources through asset sale has an implication on JSPL in terms of meeting its repayment schedule.
JSW Energy also refused to accept Jindal Steel’s demand for an upfront bank guarantee of 3,000 crore