Shares in Jaiprakash Power Ventures fell as much as 17.32 per cent on Monday after analysts said the deal to sell two hydroelectric power plants to a consortium led by Abu Dhabi National Energy Co (TAQA) was for less than expected.
TAQA will be spending $616 million on equity in the plants, and in addition take over JPV’s non-recourse project debt, bringing the total enterprise value to around $1.6 billion (Rs. 9,900 crore).
JPMorgan downgraded Jaiprakash Power Ventures to “neutral” from “overweight” and reduced its target price to Rs. 19 from Rs. 25, saying the implied deal equity valuation was 30 per cent lower than expected at $616 million.
“The risk-return tradeoff is no longer attractive, in our view,” JP Morgan said in the research note, calling investors to switch to Jaiprakash rival Tata Power on which it has an “overweight” rating.
Profit-taking also played a role in the falls, traders said. Jaiprakash Power shares were down 14.3 per cent at 11.35 a.m., wiping out its 12.2 per cent surge on Friday in anticipation of the deal.
The fall, if sustained, could also erase the power and infrastructure company’s gains of 27.8 per cent in February. Parent company Jaiprakash Associates shares fell 4.1 per cent; the stock was the top Nifty loser.
The two plants Jaiprakash Power Ventures is selling are located close to each other in Himachal Pradesh and have a combined generating capacity of 1,391 megawatts. The deal, which needs regulatory and third-party approvals, is expected to close in 2014, TAQA said.
The deal was necessiated as the companies have suffered from large debts and weakness in the Indian economy over recent months. Including subsidiaries, Jaiprakash Associates had total debts of Rs. 55,000 crore to Rs. 56,000 crore in September. The company has planned to cut its debt by Rs. 15,000 crore through sales of assets including cement and power plants during the current fiscal year through March.
Jaiprakash Associates last year sold its cement plant in Gujarat state to UltraTech Cement for around $594 million including debt.
Jaiprakash Power reported a widening of its net loss to Rs. 153 crore in the three months to December, while its shares are down about 40 per cent in the past 12 months.
State-run TAQA, with 51 per cent of the consortium, will control the operations and management of both plants under the deal. PSP Investments, one of Canada’s largest institutional investors, will own 39 per cent and an infrastructure fund run by India’s IDFC Alternatives will hold 10 per cent.