F1 Builder’s Shares Plunge as Bid to Sell India Assets Fails

Jaiprakash Associates Ltd., the builder of India’s only Formula One race track, plunged the most since 2009 after its unit failed in its second attempt to sell hydro power assets to raise funds to pay debt.

A unit of billionaire Anil Ambani’s Reliance Power Ltd., which had signed a memorandum of understanding to buy Jaiprakash Power Ventures Ltd.’s three hydro-power plants on July 27, scrapped the deal citing “regulatory uncertainties and tariff issues,” according to a statement yesterday. Reliance Power said in July that Jaiprakash’s three plants, with a combined capacity of 1,791 megawatts, had an asset size of more than 100 billion rupees ($1.6 billion).

The scuppered deal will hit plans by Chairman Manoj Gaur, who took on debt to expand the cement maker’s power, sports and construction businesses, to cut liabilities. Failure by India’s most indebted maker of the construction material to sell the assets a second time may lead to lower valuation for the plants, according to Rabindra Nath Nayak, an analyst with SBI Capital Markets.

“They may now club more assets together for sale to make it lucrative,” Nayak said in a phone interview. “They have other suitors,” including the Adani Group and Sajjan Jindal- owned JSW Energy Ltd., he said.

Jaiprakash Associates’ debt climbed 64 percent over three years to 726 billion rupees in March, according to data compiled by Bloomberg.

Jaiprakash Power fell 14.3 percent to 11.70 rupees in Mumbai, the lowest level since August 2013. Jaiprakash Associates tumbled 19 percent, the biggest loss since January 2009, to 25.80 rupees, making it the worst performer in the MSCI AC Asia Pacific Index.

Rating Cut

Abu Dhabi National Energy Co., known as Taqa, withdrew from an agreement to buy two hydro-power projects in July 24 after signing an agreement in March to take over the assets at an enterprise value of $1.6 billion along with a Canadian institutional investor and Indian infrastructure finance fund, IDFC Ltd.

The sale of the hydro units would have helped bring down the debt of the group by 58 billion rupees according to a company presentation in June on its website. The group aims to reduce its debt to 450 billion rupees by the end of this fiscal year in March 2015, it said in July post the Taqa break-up.

Kim Eng Securities Pvt. cut it’s recommendation for Jaiprakash Associates to hold from buy today and reduced its target price by 58 percent to 39 rupees. Deutsche Bank AG also cut its target price to 32 rupees.

Permits Canceled

Jaiprakash Associates also had it’s coal mining permit canceled by India’s Supreme Court, which yesterday annulled 98 percent of extraction licenses issued since 1993.

Cancelation of four coal blocks alloted to Jaiprakash Associates was “negative as it takes away the captive mines linked to its power and central India-based cement capacities, and in turn, takes away its supply of inexpensive fuel,” Pulkit Patni and Mohit Soni, Mumbai-based analysts with Goldman Sachs Group Inc., wrote in a research note today.

Jaiprakash Associates sold its Gujarat cement unit to billionaire Kumar Mangalam Birla’s UltraTech Cement Ltd. for 38 billion rupees. It also sold its 74 percent stake in Bokaro Jaypee Cement Ltd., a joint venture with Steel Authority of India Ltd., to Dalmia Bharat Ltd. for 11.5 billion rupees in March.

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