JSPL To Divest Jindal Power To Promoter Group Entity For Rs 3,015 Crore
JSPL has accepted a binding offer from Worldone to divest its 96.42% stake in subsidiary Jindal Power.
Jindal Steel & Power Ltd. will divest its coal-fired power business to its promoter group entity as part of its strategic plan to pare debt, reduce emissions and focus on domestic steel business.
The Naveen Jindal-led steelmaker has accepted a binding offer from Worldone Pvt. to divest its 96.42% stake in subsidiary Jindal Power Ltd., according to an exchange filing. The equity value is an all-cash offer of Rs 3,015 crore for the stake sold, including 3,400-megawatt coal-fired power plants in Chhattisgarh and other non-core assets owned by Jindal Power.
To be sure, Naveen Jindal, chairman of the board and a promoter of JSPL, along with his relatives, hold the majority equity share capital of Worldone.
The long stop date for completion of the proposed sale is 12 months. The deal, however, is subject to approval from shareholders of JSPL, lenders of Jindal Power and JSPL, and such other statutory approvals, consents, permissions, and sanctions as may be necessary in line with the extant relevant guidelines.
“This divestment is in line with our ESG (environmental, social, and governance) objectives to be among the top 10 lowest carbon dioxide emitting steel companies of the world. It’s yet another step towards our vision to reduce debt substantially and create a robust balance sheet for our investors and stakeholders,” VR Sharma, managing director at JSPL, was quoted as saying in the filing.
JSPL’s consolidated net debt stood at Rs 25,621 crore as of December 2020 compared with Rs 28,910 crore witnessed as of September 2020. The steelmaker, according to the filing, aims to reduce carbon footprint by almost 50%.
Besides, JSPL, according to Sharma, will be a key growth driver in the Indian steel industry and will now focus on expanding its upcoming Angul steel plant from 6 MTPA to 12 MTPA. “Infrastructure spending in India is bound to grow exponentially and JSPL is fully aligned with Government of India’s vision of achieving 300 MTPA steel production by 2030.”
Jindal Power’s Financials
Total income of Jindal Power for the nine months ended Dec. 31, 2020 stood at Rs 3,853.07 crore, constituting 13.95% of the consolidated turnover of JSPL. Its net worth included in the consolidated net worth of JSPL for the same period was Rs 9,882.70 crore.
Shares of JSPL rose as much as 2.95% as of 9:30 a.m. on Tuesday. Of the 25 analysts tracking the company, 23 have a ‘buy’ rating, according to Bloomberg data. The consensus 12-month price target implies a potential upside of 2.8%.
Deal Valuations
Adjusted for redeemable preference shares (Rs 7,000 crore, 5% coupon, 20 years) and inter-company loans (Rs 4,400 crore, 9% interest, seven years), enterprise value stands at Rs 9,100 crore, according to a report released by Investec.
Further, assuming Rs 250 crore on the back of coupon payments over the tenure of the instrument, with payout a function of Jindal Power assets’ profitability, the EV could slip further to Rs 8,000 crore, a low probability event, Investec said.
Based on headline numbers, adjusting for equity (Rs 3,000 crore), debt (Rs 6,500 crore), redeemable preference share (Rs 7,000 crore), inter-co loan (Rs 4,400 crore), EV stands at Rs 12,000 crore. Though simplified, the brokerage said it’s not the right approach.
JSPL has yet to respond to BloombergQuint’s emailed queries.