With the Jaiprakash Power Ventures-Reliance Power deal falling apart, two months after it was proposed, the stocks of JP Ventures and parent Jaiprakash Associates have fallen 14 per cent and 19 per cent, respectively, today.
Under the deal, which valued Jaiprakash Power Ventures (JP Ventures) power assets at over ₹10,000 crore, Reliance Power was to acquire the former’s entire portfolio of operational hydro power projects generating 1,791 MW of power.
This would have helped deleverage parent JP Associates’ consolidated balance sheet (₹61,101 crore debt as on March 31). It would have helped it pare its debt-to-equity ratio from close to six times as on March 31 to five times.
JP Associates which has been making efforts to bring down its debt had earlier sold its cement division to UltraTech Cement at a value of over ₹3,800 crore.
Regulatory uncertainties, tariff issues
According to Reliance Power, the deal has been called off due to regulatory uncertainties and tariff issues. The 1,091-MW Karcham Wangtoo power plant in Himachal Pradesh, one of the three projects to be sold off, was permitted to have a capacity of only 1,000 MW.
The alleged violation – operating a larger capacity than allowed - by JP Ventures is likely to be looked into by the Central Electricity Authority. Besides, there is also uncertainty with regard to the tariff at which power from the Karcham Wangtoo plant will be sold. The Central Electricity Regulatory Commission has asked the company to file a tariff petition for the plant for the 2014-19 period.
But, this is not the first time that JP Ventures’ efforts to sell off its assets have hit a roadblock. Prior to Reliance Power’s offer, JP Ventures’ deal with a consortium led by Abu Dhabi National Energy to sell off two of the company’s operational hydro plants (including the Karcham Wangtoo plant) did not go through.
With a sharp increase in finance costs eating away into profits, JP Ventures posted a net profit of ₹33 crore in 2013-14, one-tenth of the profit in the year before. The three power plants that were to be a part of the deal had generated revenue of about ₹1,900 crore out of the company’s total revenue of ₹2,459 crore in 2012-13.