JSW Energy has put its power equipment manufacturing joint venture with Toshiba on the backburner and is on the verge of calling off its Rs 2,700 crore deal to acquire Bina Power from Jaiprakash Power Ventures, as the company changes its strategy to face the challenges in the sector.
The Sajjan Jindal-led company at the time of its IPO in 2009 had declared a stated policy of acquiring coal and selling fuel more in favour of short-to-medium term, but a rise in coal prices and sharp decline in the price of short-term merchant power have made it change its portfolio mo- re towards long-term pacts.
“Our focus is that of our total 4.5 gigawatts, we have 64% tied up for the long term and we want to increase this to 75% in the next 12 months. Given the product mix that we have, some of our capacity is imported-fuelbased at locations where it is not very viable to have low cost of power at this point of time. We are working on getting necessary environmental approval on changing the fuel to domestic coal,” chief executive Prashant Jain told ET in an interview.
The company had to deliberately keep its output from power plants at Ratnagiri and Vijayanagar at low levels due to the fall in merchant power rates. “Power distribution companies are not signing power purchase agreements because they are able to buy cheap merchant power at Rs 2.50 (a unit). I feel the power prices in this country would not be going up now; the new normal would be Rs 3 a unit,” Jain said.
JSW Energy had emerged as one of the few local strategic buyers in the mergers and acquisitions market in the power sector. While it is confident of completing acquisition of a 1,000 mw power plant in Chhattisgarh from Jindal Steel & Power — run by Sajjan Jindal’s brother Naveen — by June 2018, it has almost written off the planned acquisition of Bina Power. The JSPL long-stop date is June 2018.
“Both companies are preparing for the transaction. We are getting approvals; they are seeking lenders’ approval,” he said. “Chances of Bina deal completion are very less as things are on the backburner from the lenders side. I am hopeful on the JSPL transaction but there are a lot of conditions that they need to comply with,” Jain said.
The acquisition of the Bina plant, announced in 2015, has been delayed as lenders have not given their consent. JSW has extended the deadline for the deal to December 31 from May 31, but it does not expect it to close and is not factoring in this deal while making growth plans. “We have appetite to acquire more as our debt-to-equity ratio is comfortable and have a lot of headroom to leverage our balance sheet.
But projects don’t have coal supply, PPAs and the lenders are not ready to take a substantial haircut (reduction in asset value), so it’s making the situation challenging,” Jain said. The company has also put its power equipment joint venture with Japan’s Toshiba on the backburner. Why would a company invest when there is so much overcapacity in thermal power? The writing on the wall is that solar is the future.
We have already provided for our Rs 100 crore investment in the Toshiba JV,” Jain said.