Adani Power buys Lanco thermal plant for Rs 6,000 cr

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In signs of recovery in the deal market, especially for long stalled projects in the power sector, Lanco Infratech has sold its Udipi thermal power plant to Adani Power for Rs 6,000 crore.

In what is touted as Lanco's biggest deal, the company would get Rs 2,000 crore in cash, while Adani Power will take on Rs 4,000 crore in long-term liabilities. This will help Lanco reduce its total debt of Rs 36,000 crore.

The Udipi plant in Andhra Pradesh has a capacity of 1200 mw with two units of 600 mw each.

“This transaction will support the company in reducing its debt and will enable Lanco to receive about Rs 2,000 crore as cash. Additionally, Adani Power will take Udupi Power's long-time debt of around Rs 4,000 crore,” Lanco said in a statement. There are two units of 600 mw production capacities each, in the plant.

Analysts believe the deal is extremely good for Lanco, though it has not got any premium as the deal has happened at 1.4 times price to book value, which in a way means a desperate sale. But still it is going to be difficult for Adani to secure funds for the project.

Bhargav B, senior power analyst with Ambit Capital, said Adani Power already has around Rs 28,000-30,000 crore in debt, hence it would be difficult for them to secure Rs 2,000 crore in cash for the Udipi project and could be slightly negative for the stock.

Rupesh Sankhe, senior analyst with Karvy Stock Brokers, said although it would be difficult to raise funds on the group company balance sheet, they can raise funds at the special purpose vehicle (SPV) level. "It is an operation project, with regulated tariff structure, with a jetty to import and export coal and PPA agreement in working condition, hence it would be positive for them in long term," said Sankhe.

The coal-based thermal power plant supplies around 90 per cent of the power to Karnataka and the rest to Punjab. The plant is said to be the first independent power project in the country based on 100 per cent imported coal with a captive jetty of 4 million tonnes per annum and an external coal handling system in the new Mangalore Port Trust. The plant's capacity can be expanded to handle another 4 million tonnes.

The power plant has an agreement with the Karnataka government to expand it to 1,320 mw. Lanco has seven thermal power plants. In fact, at the end of FY13, the company’s installed power capacity stood at 4,732 mw and capacity under construction stood at 4,636 mw. Out of the installed capacity, 63 per cent was coal based, 34 was gas based and 3 per cent was renewable, including hydro.

The improvement in overall market sentiment with the new government at the Centre has led to overall improvement in the mergers and acquisitions space. Investors are showing confidence in deals that give long-term value.

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