JSW Said to Offer Guarantees to Fund Jindal Power Plant Purchase

JSW Energy Ltd., controlled by the owners of India’s third-largest steelmaker, will offer little upfront cash in its planned acquisition of an electricity project from Jindal Steel & Power Ltd., people with knowledge of the matter said.

JSW aims to reach an agreement by the end of March on the purchase of Jindal Steel’s 1,000-megawatt plant in Chhattisgarh’s Raigarh district, the people said, asking not to be identified as the information is private. The initial consideration would be about 45 billion rupees ($675 million), with most to be settled through payment guarantees rather than cash, according to the people.

The guarantees would help cash-strapped Jindal Steel, run by the brother of JSW’s chairman, take out new bank loans to repay existing debt and fund planned capital expenditures, one of the people said. The total value of the deal could reach as much as 65 billion rupees, including payments to be made later when certain targets are reached, the people said.

Jindal Steel, which posted losses for the last five quarters, has been hurt by lower Chinese demand for construction materials and industry overcapacity. The company said this month it’s in talks with banks about debt-refinancing options and is considering divestments to improve its financial position. 

Coal Costs

The sale of the Chhattisgarh plant could help remove the need for banks to mark some of their loans to Jindal Steel as soured debt, according to one of the people. Under the terms being discussed, the full deal amount would only be paid after a power-purchase agreement is signed and the plant is fully separated from common infrastructure that also serves other nearby Jindal Steel projects, the people said.

An agreement hasn’t been finalized yet, and it’s possible details could change, the people said. A spokesman for JSW didn’t immediately respond to an e-mail seeking comment outside regular business hours. Jindal Steel said in an e-mailed statement it is looking at various options to strengthen its balance sheet, declining to comment further.

Jindal Steel had to pay an additional 33 billion rupees to purchase coal in the past two years, after some of its own coal blocks were canceled, it said in a March 10 statement

JSW Energy, which has an operational capacity of 4,531 megawatts, aims to boost its power generation capability to 11,770 megawatts, according to its website. In September, it completed the purchase of two hydroelectricity projects from from Jaiprakash Power Ventures Ltd. for 92.75 billion rupees. 

The company agreed in July to buy a controlling stake in Monnet Ispat & Energy Ltd.’s 1,050-megawatt power plant under construction in eastern India. JSW Chairman Sajjan Jindal said later that month the company was seeking a haircut from the electricity project’s lenders.

Savitri Jindal, the mother of the chairmen of JSW and Jindal Steel, has a net worth of $2.2 billion, according to the Bloomberg Billionaires Index.

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