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F1 Builder Moves Closer to Debt Reduction Goal: Corporate India

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Oct. 23 (Bloomberg) -- Jaiprakash Associates Ltd. is attracting investors including Birla Sun Life Asset Management Co. as the builder of India’s only Formula One racing track moves closer to its target of cutting debt by $2.4 billion.

The group led by Manoj Gaur is in talks to sell two of its hydro power plants to Abu Dhabi National Energy Co., said two people familiar with the matter. The assets may be sold for about 130 billion rupees ($2.1 billion) including debt, another person said, asking not to be identified because the negotiations are private. Jaiprakash has raised 53.5 billion rupees selling cement plants and land.

Jaiprakash and rival GMR Infrastructure Ltd.’s success in reducing liabilities is luring investors to the companies. Net borrowings at Indian firms, excluding banks, on the S&P BSE200 index more than doubled to $196 billion on Dec. 31, according to data compiled by Bloomberg. Slashing debt may help corporates boost profitability amid the central bank’s move to raise interest rates to slow inflation in the nation.

“We will obviously look positively at any over leveraged company if their leverage comes down,” Sankaran Naren, who oversees about $14.8 billion in assets as chief investment officer at ICICI Prudential Asset Management Co. said in an interview in Mumbai. Debt reduction “ has always been a positive sign for equities.”

Jaiprakash Power Ventures Ltd. runs the generators, which produce a combined 1,300 megawatts of power, the person said. Jaiprakash is also in talks with another international company for the hydro-power assets, one of the people said. The Indian company would need approval from the Ministry of Environment for the deal, one of the people said.

Airport Operator

Abu Dhabi National Energy, the United Arab Emirates-based utility known as Taqa, increased capacity in India to 350 megawatts when it bought a stake in a hydroelectric plant developed by Himachal Sorang Power Ltd., according to its website. Spokesmen for both companies declined to comment.

GMR Infrastructure, which operates India’s biggest airport in New Delhi, sold assets worth more than 30 billion rupees this year including its 70 percent stake in a Singapore power plant and two expressway projects. The company had 423 billion rupees of debt as of March 31, data show.

Jaiprakash Power’s shares rose 2.5 percent to 20.35 rupees at 11:29 a.m. in Mumbai. Jaiprakash Associates’ shares fell 2.1 percent. They have dropped 52 percent this year making them the worst performing stock in the CNX Nifty index of 50 companies.

Sale Delay

Birla Sun Life bought a net 3.6 million shares of Jaiprakash as of Sept. 30, according to data compiled by Bloomberg. Snigdha Nandan, a spokeswoman for Birla Sun Life was not immediately available for comment.

Last month, Jaiprakash Associates agreed to sell a cement unit to UltraTech Cement Ltd. Discussions on the deal took a year, UltraTech Chairman Kumar Mangalam Birla told reporters.

Delays in selling the assets may hit valuations, said Rikesh Parikh, vice president of equities at Motilal Oswal Securities Ltd. in Mumbai. UTI Asset Management Co. sold 7.7 million shares of the company as of Sept. 30, data show.

“The company is selling its profitable assets, which are remunerative,” said Parikh. “The valuations of the assets may be lower if they sell them in a hurry.”

Jaiprakash group’s liabilities increased fivefold in five years as Chairman Gaur took on debt to expand the cement maker’s power, sports and construction businesses.

Sustainable Debt

Jaiprakash Associates had a net debt of about 612 billion rupees, the highest among Asian makers of the construction material after China National Building Material Co., according to data compiled by Bloomberg.

Founder Jaiprakash Gaur, who started as a civil contractor, expanded into hotels in 1981 and started producing cement five years later. In the past five years, Jaiprakash Associates added 15 subsidiaries from air transport services and a company to process soya and mustard to managing a hockey team, according to the company’s annual report.

The company has also developed a 5.13-kilometer (3.19-mile) Formula One track called the Buddh International Circuit, built on the outskirts of India’s capital, New Delhi. The inaugural race was held in 2011.

Asset sales have also helped lower the yield on Jaiprakash’s convertible bonds. They dropped to 12.1 percent yesterday from 14.9 percent on Sept. 3, according to Barclays Plc prices. Dollar-denominated, non-investment grade bonds returned 12.2 percent in 2013, according to Jefferies Group LLC indexes.

Jaiprakash’s sale of its power plants “could turn out to be one of India’s largest asset sales of a power company in distress,” said C.V.S.L. Kameswari, head of research at Firstcall Research. “If the deal goes through, the new buyers will pay for the equity infused into the projects and would also take over the debt.”

To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net; Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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