M & A CritiqueAdani Power Ltd (APL), the country’s largest private sector power generation company, has acquired Lanco Infratech’s Udupi plant for Rs 6,000 crore. The installed capacity of the plant is 1,200 MW. APL’s installed capacity is capacity at present is 10,440 MW, comprising of 4,620 MW at Mundra in Gujarat, 2,640 MW at Tiroda in Maharashtra and 1,320 MW at Kawai in Rajasthan, one more unit of 660 MW at Tiroda and the acquisition of 1,200 MW Udupi power plant. Adani Power is now closer to its goal of achieving 20,000 MW of capacity by 2020.
LANCO INFRATECH LIMITED (LITL)
LITL is an integrated infrastructure player in the country having business verticals in EPC, power, solar, natural resources and infrastructure. At Lanco Infratech, high fuel costs and low capacity utilization have increased financial stress. Lanco had put the power plant on the block two years ago, aiming to use the proceeds to lower its consolidated debt.
After Adani Power acquired Lanco Infratech’s Udupi plant, the Gujarat-based company’s overall installed capacity has now increased to 10,440 megawatt
ADANI GROUP
The group, controlled by billionaire Gautam Adani, is planning to concentrate on the Indian infrastructure sector and has put its loss-making coal terminal in Australia for sale at a reported valuation of $2 billion.
WHAT UDUPI POWER PLANT CONSISTS?
- The power plant has 1,200 MW capacity. The first unit of the plant, with a capacity of 600 MW, was commissioned in November 2010, while another 600 Mw in January 2011. Udupi plant had also signed an agreement with the state government for a further expansion of 1,320 Mw
- The Udupi project has power sale agreements with Karnataka to sell 90 percent of generated power and with Punjab for 10 per cent
- It is the first independent power project (IPP) in the country based on 100 per cent import coal and has a captive jetty of 4 million tons per annum. The capacity can be expanded to handle another 4 million tons
- It also has an external coal handling system in the New Mangalore Port Trust
But the unit has been facing operational issues that even led to the stoppage of production as Rs 1,800 crore of arrears from the Karnataka Electricity Board piled up. Also, Lanco, which was importing Indonesian coal to run the power station via New Mangalore Port, failed to lift the fuel from a ship berthed at the port.
WHAT ADANI GAINS?
The buying of Udupi plant will further consolidate Adani Group’s position as India’s largest private sector power producer. With one more unit of 660 MW commissioning at Tiroda and this acquisition of 1200 MW Udupi power plant, the installed base of Adani power has now increased to 10,440 MW, getting Adani Power closer to its goal of achieving 20,000 MW of capacity by 2020. This will also mark their entry into southern India. Adani power will endeavor to expand the capacity of Udupi expeditiously, leveraging its project execution capabilities. Adani power is also committed to seizing further opportunities for capacity addition and provide much-needed energy security of Southern India. In fact, the buying of Udupi plant is a strategic fit to the integrated infrastructure business model of the Adani Group and establishes Adani Power’s presence in southern India.
WHAT LANCO GAINS?
The primary reason for the sellout seems to be the ballooning debt, due to lack of fuel, low tariffs and distribution bottlenecks. The transaction will support LITL in reducing its debt of Rs 4,000 crore and receive Rs 2,000 crore cash. The Udupi sale follows the divestment of Lanco’s 70MW Lanco Budhil hydropower project and two smaller plants of 5MW each in Himachal Pradesh to Hyderabad-based Greenko Energies Pvt. Ltd for €77 million. The sales have been inspired in part by a corporate debt restructuring (CDR) agreement that the company entered into with creditors. In December 2013, Lanco Infratech’s bankers approved a proposal to restructure a total of Rs 7,700 crore of the company’s debt, allowing the power generator a two-year interest holiday. Many Indian companies, especially in the infrastructure space, are selling assets to reduce debt. Last month Reliance Power Ltd, controlled by Anil Ambani’s Reliance Group, agreed to buy the hydropower assets of Jaiprakash Power Ventures Ltd for an undisclosed amount. The sale is to enable Jaypee group’s efforts to pare debt of around Rs. 60,000 crores.
CONCLUSION :
Power sector and particularly thermal power producers are having a tough time since the last few years. The main problem is to get coal at the competitive rate. Imported coal cost varies due to rupee depreciation where selling price per unit does not change leading to lower contribution. Further, as in all the cases, recovery from state power distribution companies is not commensurate with sales stressing financials of companies already constrained by heavy leverage. Lanco perfectly fits in this description. So it has no choice to reduce some of its debts at the earliest to run remaining assets efficiently. It is a win-win situation for both the parties as Lanco has been scouting for a buyer to pare debt that had ballooned in recent years when the power sector was in deep trouble.
