India's Reliance Power signs exclusive MoU to acquire 1791MW hydro projects portfolio

Ballpark deal value is INR120bn.

A media release by India-based Reliance Power (RPWR), Reliance CleanGen (RCL), a 100% subsidiary, has signed an exclusive MoU with Jaiprakash Power Ventures, a subsidiary of Jaiprakash Associates, for acquiring 100% of JPVL’s hyrdopower portfolio comprising three run-of-the-river operational projects.

According to a research note from Nomura, the projects have an asset base of over INR100bn and asset life of over 50 years – Baspa-II (300MW), Vishnuprayag (400MW) and Karcham Wangtoo (1091MW).

The report noted that, at an analysts’ briefing, management shared its philosophy behind the proposed asset buyout and broad contours of the deal.

For instance, indicative Enterprise Value (EV) of the three projects (ie, deal value) is pegged at ~INR120bn; aggregate equity invested by JPVL in the three projects is INR31bn and loan funds linked to the assets (project debt + securitized debt) is ~INR71bn.

Here's more from Nomura:

The transaction would largely be debt funded – aggregate cash profits (PAT + Depreciation) of the three projects is ~INR9bn/year (without any potential asset sweating / refinancing gains), sufficient to service long-term debt of ~INR90bn.

Once the deal is done, management sees scope of augmenting the annual cash profits to INR12-13bn.

Management expects the deal to be earnings accretive straight away; expects overall RoE generation by these projects at >16%.

Additional funding alternatives under consideration include of quasi-equity funding / PE investment at RCL, raising money via Infrastructure Investment Trusts and/or very long-term infra bonds.

Management categorically ruled out any equity dilution in RPWR on account of the proposed transaction.

Further, management intends to avoid utilizing RPWR’s existing cash chest and annual cashflows over the next few years (estimated at ~INR15bn) to fund this deal and instead emphasized that RPWR’s ongoing capacity expansion plans would not get pushed back.

Management does not intend to rescind existing PPAs under which offtake has been tied up from the projects.

It does not envisage Central Electricity Regulatory Commission’s (CERC’s) pending final tariff approval for the 704MW PPA from Karcham Wangtoo as a hindrance to conclude the deal.

JPVL’s 28-member team operating these hydro projects will be absorbed by RCL.

Further Reliance Infra (RELI IN, Not Rated) may absorb a majority of the 3000 workforce of JPVL who have expertise in the build-out of hydropower projects.

Exclusivity period stipulated in the MoU is eight weeks; full technical & financial due diligence will be done, but management wouldn’t be starting from scratch.

The management expects to complete this transaction in about four months.