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Canada’s pension fund to buy 49% stake in Reliance Infra’s power biz

Reliance Infrastructure has signed a non-binding term sheet with the Public Sector Pension Investment Board (PSP Investments) for the sale of 49% equity stake…

Reliance Infrastructure  has signed a non-binding term sheet with the Public Sector Pension Investment Board (PSP Investments) for the sale of 49% equity stake in the company’s integrated power generation, transmission and distribution business in Mumbai and adjoining areas, Reliance Infrastructure Ltd, a part of Reliance Group, said in a statement on Monday.

PSP Investments is one of the large pension funds based out of Canada, with C$112.0 billion of net assets under March 31, 2015.

According to the agreement, power generation, transmission and distribution business in Mumbai will be carved out separately into a special purpose vehicle called Reliance Energy.

While, the deal is yet to close, sources say that the sale value for the 49% equity stake will be to the tune of Rs 3,500 crore. The enterprise value of the SPV will be pegged at around Rs 15,000 crore.

The transaction, which is expected to close in March 2016, is expected to bring down the debt levels of Reliance Infra to Rs 5,000 crore from the present Rs 16,000 crore. Around Rs 8,000 crore of debt is also expected to be moved to Reliance Energy, sources indicated.

However, as RInfra will continue to hold 51% stake in the business, it is expected to retain management control in Reliance Energy.

The company’s Mumbai power business under Reliance Energy distributes power to nearly 3 million residential, industrial and commercial consumers in the suburbs of Mumbai, covering an area of 400 sq km, and catering to a peak demand of over 1,800 MW, with revenues of R7,700 crore in FY2014-2015.

According to a statement from the company, exclusive agreement between the two parties is valid till March 31, 2016. The proposed transaction is subject to due diligence, definitive documentation, applicable regulatory and other approvals and certain other conditions.

“Accordingly, there can be no certainty that a transaction will result. Further announcement will be made at appropriate stage,” the statement said. Last week, RInfra announced that it is looking to sell its cement and roads businesses, and will focus on the upcoming opportunities in India’s defence sector. The company is hopeful of closing that deal by March 2016, as well.

Company officials said that the proceeds from the sale of these assets will be primarily utilised for completion of Pipavav Defence acquisition and retirement of debt. Reliance Infrastructure had signed an agreement in March 2015 with Pipavav Defence & Offshore Engineering to acquire the company in an all-cash deal.

Meanwhile, the company also said on Monday, that it has received necessary regulatory approvals and will begin to acquire shares from public investors of Pipavav Defence from December 2 onwards. Mandatory open offer, as part of Sebi Takeover Regulations, will end on December 15, the company said in a stock exchange filing.

As part of the deal, Reliance Defence will purchase nearly 18% stake in Pipavav Defence from promoter group led by Nikhil Gandhi at Rs 63 per share and additionally acquire 26% stake from public investors at Rs 66 apiece.

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