TAQA pulls the plug on $1.6-bn JP Power deal

Written by fe Bureau | Updated: Jul 25 2014, 13:18pm hrs
While Indian companies are drawing up ambitious plans to monetise assets to pare debt on their books at a time foreign investors are keenly eyeing India, not all of these may eventually materialise. In the first casualty to corporate Indias plans to de-leverage itself, the biggest foreign direct investment deal by value announced in 2014 so far has fallen through. The acquisition of Jaiprakash Power Ventures two hydropower plants by Abu Dhabi National Energy (TAQA) in March has fallen through.

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The deal was expected to fetch Rs 9,689 crore (enterprise value) with which the Jaypee Group intended to reduce debt of around Rs 58,000 crore across the books of its companies. Had the deal gone through, it would have led to a cash inflow of around Rs 3,820 crore into the Jaypee Group and helped bring down debt by Rs 5,869 crore, according to a June 2014 group investor presentation.

They (TAQA) have stated that they have been constrained to take the said decision as a result of a change in the business strategy and priorities of the group, JP Power said in a statement to the bourses on Thursday.

We may add here that such withdrawal makes TAQA liable to payment of break fee in terms of the said acquisition agreement, the statement added.

The agreement followed the signing of the UAE-India Bilateral Investment Promotion and Protection Agreement in December 2013 and a commitment made by the UAE to invest $2 billion in Indias infrastructure space.

An email sent to TAQAs spokesman in Abu Dhabi on Thursday didnt elicit any response till the time of going to press. He didnt answer phone calls and messages either.

Jaiprakash Powers share slumped 7.02% on the BSE on Thursday to close at Rs 19.20. Jaiprakash Associates lost 6.06% to close at Rs 62 per share on the BSE. The bourses benchmark Sensex gained 0.48% to close at 26,271.85 points.

In a separate statement issued after market hours, Jaypee Group chairman Manoj Gaur said that TAQAs decision to withdraw from the deal would not impact his groups commitment to pare debt to Rs 45,000 crore by March 2015. We have created valuable assets and we are confident to get investors to help us raise funds in the near future, Gaur said.

It had been reported in June that the state government of Himachal Pradesh, where both the hydropower assets that were on the block are situated, had some reservations regarding the assets in question and consequently to the proposed deal with TAQA itself. Jaypees statement termed TAQAs decision as unfortunate. The agreement in March was signed after detailed due diligence by them, the statement said. Yet, for some reasons known to them, they have decided to undo the agreement.

The Jaypee Group has been on an asset-selling spree to improve its cash flows and bring down debt. In September 2013, it sold two of its cement facilities in Gujarat to the Aditya Birla Groups UltraTech Cement for an enterprise value of Rs 3,800 crore. In May 2013, it sold a 300-acre land parcel in Noida to realty firm Gaursons India for Rs 1,500 crore. In March, it sold a controlling interest in another of its cement plants in Bokaro to the Dalmia Bharat Group for R851 crore.

At the end of FY14, Jaiprakash Associated, the flagship holding company of the Jaypee Group, had a consolidated net debt of around R58,911 crore, excluding proceeds from sale of its cement plans in Gujarat and two hydropower projects.

Jaiprakash Associates debt servicing capability would be impacted further with this deal falling through. The companys Ebit (earnings before interest and tax) to interest ratio deteriorated from 1.2 in FY13 to 0.79 in FY14.

Jaiprakash Associates draft offer prospectus for its proposed qualified institutional placement (QIP) of shares through which it aims to raise R1,500 crore also stated under the subhead of risk factors that the firm was currently not compliant with certain financial covenants of its loan agreements. The prospectus was dated July 7.

The total outstanding principal amount of the loans under which our company is not currently in compliance with all covenants and ratios amounted to R10,079 crore, which constitutes 35.77% of our companys total principal amount of standalone indebtedness of R28,164 crore, the prospectus said.

There is a risk that our lenders may take action to declare us in default of our agreements and accelerate our debt.

A sector analyst with a Mumbai-based brokerage stated that JP Power may consider alternative avenues to raise funds like a private placement of equity or a QIP to raise funds and repay debt. He declined to be identified as he is not authorised to speak to the media. It may not be the end of the road for the company as they have generating assets on the ground, he said.