LN Mittal & Farallon Capital invests 1,580 cr in Indiabulls Power Services

In the largest private equiy deal in India’s power sector, steel baron LN Mittal and hedge fund Farallon Capital have invested Rs 1,580 crore for a 28.6% stake in Indiabulls Power Services (IBPS). IBPS is promoted by the Indiabulls group to set up power plants across the country. The move comes days after power sector valuations tumbled in the wake of Reliance Power’s listing and concerns over stretched projections prompted global investors to balk at doing similar deals with other power companies.

Mr Mittal — who has already invested Rs 2,000 crore in several Indiabulls companies (6% in Indiabulls Financial Services, and holds 3% in Indiabulls Real Estate and 10% in the Raigarh SEZ project) — will invest Rs 592.5 crore for 10.7% of IBPS, which is 100% owned by Indiabulls Real Estate (IBREL). The North Carolina-based hedge fund Farallon will buy 17.86% for Rs 987.5 crore. The fund has invested about Rs 4,000 crore in the Indiabulls group, so far.

IBPS has laid out plans for 11,400 mw of power capacity in several states including Maharashtra, Jharkhand and Arunachal Pradesh. The deal values IBPS at about Rs 5,525 crore, considerably lower than the figures quoted by other leading power companies such as Essar and Sterlite Energy. Both Essar and Sterlite Energy have been quoting valuations over $5 billion backed by their operational expertise and the fact that they already operate power plants. They are also looking for private equity. IBPS, on the other hand, has no operating power assets.

Worries over stretched valuations have led to delays in closure of some PE deals in the sector. Those concerns have worsened in the past few days due to the poor IPO performance of Reliance Power. Power stocks have tumbled between 2% and 16% in the past one week. The R-Power scrip has fallen 17.77% from its offer price of Rs 450 per share since listing its listing on Monday.

Post-equity dilution, IBREL will hold 71.40% in IBPS. The investment by LN Mittal and Farallon will increase the networth of Indiabulls Power to Rs 2,172 crore making it among the top five private companies in the power sector.

“Except the sentiment, nothing has changed in the power sector. The fundamentals are still strong and the government’s programme for capacity addition of another 70,000-80,000 mw with private sector participation in the next few years is on the cards,” Anurag Purohit, research analyst with Religare Securities said.

“Indiabulls sees a tremendous opportunity to capitalise on the growth of the Indian power generation sector. The Government of India has projected that to sustain the current GDP rates, additional capacity of 78,000 mw and 82,000 mw is needed during the 11th Five Year Plan (2007-12) and 12th Five Year Plan (2012-17), respectively,” Indiabulls Group founder and chairman Sameer Gehlaut said.

IBPS through its subsidiaries has submitted bids for seven projects with a total capacity of 11,440 mw in partnership with leading domestic and international companies, where it holds 74% in each JV.

IBPS JV with Temasek-promoted power firm SembCorp is in the fray for a 4,000-mw ultra mega power project at Tilaiya, Jharkhand. SembCorp, a Singapore-listed firm has a market capitalisation of over $6 billion. Temasek Holdings, an investment fund owned by the government of Singapore holds 49.9% in the company.

Indiabulls and Meiya Power Company, Hongkong, have entered into a JV that has submitted the financial bid for the 1,320 mw pit-head power project at Bhaiyathan, Chhattisgarh.

Through its joint venture with MMTC, a GoI enterprise, Indiabulls has been shortlisted to submit a financial bid for the 1,800-mw power project in Talwandi Sabo, Punjab. Other bids include three thermal power projects in Karnataka of 1,000 mw each.

Indiabulls is also building two mega thermal power plants in Maharashtra with an aggregate capacity of 3,960 mw. This includes coal-fired super critical technology based on two separate projects of 2,640 mw and 1,320 mw each.
The company has also signed an MoU with the government of Arunachal Pradesh for four medium-sized hydro projects in the state, where detailed project reports are being prepared in consultation with reputed international consultants.