Tata Group head honcho Cyrus Mistry is betting big on the domestic power sector. ET NOW learns that Tata Power is in talks with Bhopal headquartered leading print media company DB CorpBSE -0.54 % for a potential buyout of the promoter owned power generation arm Diligent Power, according to four individuals familiar with ongoing negotiations. ET NOW was the first to report the story.
“Diligent Power Ltd which has two thermal power plants with a combined capacity of 2520 MW has been put on the block. Its a non-core, capital intensive asset. The promoters are keen to sell the arm provided they get the desired valuations and are in talks with Tata Power. At 8 crores per MW, the estimated enterprise value of both the plants can be pegged around Rs 20,000 crores, but there will be a significant debt component as well,” according to two of the four sources cited above.
Diligent Power has a 1200 MW coal based thermal power plant in Chattisgarh and a 1320 MW coal-based thermal power plant in Madhya Pradesh. Water & fuel has been secured for both the projects, according to the company website.A deal may or not necessarily fructify as one of the individuals cited above said ” Discussions have been held between Tata Power & DB Corp, though no final decision has been taken yet internally by Tata Power. One must keep in mind that both parties need to agree on the valuations. Also, Tata Power is currently eyeing other targets as well in the thermal power and renewable energy segment,” added another source.
Recently, the Rajasthan government had announced that it plans to divest stake in 8 thermal power units through a competitive open bidding system.If the transaction goes through, marque private equity investors in Diligent Power who had invested three to five years ago may also explore exit opportunities, sources added. The company had earlier raised Rs 1,450 crore in three tranches of investment between 2011 and 2013 – one from Warburg Pincus and two from JP Morgan. Additionally, in January last year, IDFC Alternatives had invested in the Chattisgarh project.
Commenting on ongoing deal trends, Rahul Mody, MD ( Infrastructure), Ambit Corporate Finance said, “Consolidation in the domestic thermal power sector will mostly be driven by Indian companies and the Asian players as the Western strategic players are now predominantly focusing on the renewable segment.”
In response to an email query from ET NOW on the proposed transaction, Tata Power said, ” The company does not respond to market speculations. We maintain that we are evaluating various options to create shareholder value.” Despite multiple calls, emails and text messages , ET NOW was unable to elicit an official response or comment from DB Corp. A JP Morgan spokesperson declined to comment and ET NOW is awaiting a response from Warburg Pincus.