Reliance Infrastructure, Adani Power up Mumbai unit sale talks

MUMBAI: Reliance Infrastructure agreed to hold exclusive negotiations with Adani Transmission Ltd for the proposed sale of the Anil Ambani-led company’s integrated power generation, transmission and distribution business in Mumbai, long considered its crown jewel. The announcement came a day after Reliance Infrastructure signed a binding agreement to divest several power transmission assets to the Adani Group.

The Mumbai business is estimated to be valued at Rs 13,000-14,000 crore ($2.15 billion) inclusive of debt, said people aware of the matter. In a regulatory filing on Tuesday, Reliance Infrastructure said it had “entered into a period of exclusivity until January 15, 2018, in relation to discussions for the proposed sale of its integrated business of generation, transmission and distribution of power for Mumbai city to Adani Transmission.”

The proposed transaction is subject to confirmatory diligence, definitive documentation and customary approvals. “Accordingly, there can be no certainty that a transaction will result. Further announcements will be made at an appropriate stage,” the company said.

The Mumbai business has 3 million customers, making it the country’s largest private sector integrated power utility, entailing 1800 mw of distribution along with generation facilities, besides an underground network of over 1,000 km. The distribution franchise is nine decades old with the licence valid until August 2036.

Adani is believed to have stepped up after Hyderabad-headquartered Greenko’s offer lapsed a few days back, said sources aware of the development. Greenko, India’s largest renewables company, had submitted a “time-bound, non-binding offer” a fortnight ago, hoping to clinch the deal. Greenko is backed by Singapore’s GIC and Abu Dhabi Investment Authority (ADIA).

According to one of the sources mentioned above, Adani is believed to have received a Rs 9,000-crore funding commitment from lenders led by State Bank of India. This, however, could not be independently verified.

Reliance Infrastructure intends to utilise the proceeds of the proposed transaction entirely to reduce debt and further strengthen its financial position to tap mega growth opportunities in defence and engineering, procurement, construction (EPC) in the infrastructure sector. Its debt was Rs 25,800 crore at the end of FY17.

Old Negotiations for Sale
According to Adani Transmission, the group’s listed power transmission arm, a deal would “strengthen its footprint in the power transmission sector while marking its maiden foray into the power distribution sector”. The company’s stock jumped 10%, the most in five months, to Rs 193.25, while Reliance Infrastructure rose as much as 3.5% to Rs 494 after the announcement.

Adani’s city gas distribution joint ventures operate in Ahmedabad, Ludhiana, Thiruvananthapuram and Chandigarh.

In November 2015, Reliance Infrastructure entered into a non-binding pact to sell a 49% stake in the business to Public Sector Pension Investment Board of Canada. Those exclusive negotiations lapsed, following which the company engaged with other potential suitors. PSP is said to have made a brief reappearance later on in the talks. Hong Kong-headquartered CLP also held discussions with Reliance to explore a merger of operations but then pulled out, said a company official on condition of anonymity.

The Mumbai circle licence, along with the generation, transmission and distribution assets, is to be carved out from Reliance Infrastructure’s electrical division and transferred to a subsidiary before being sold, said executives briefed on the matter.

On Monday, Reliance Infrastructure had announced signing a binding term-sheet agreement with Adani Transmission for three operational transmission projects — Western Region System Strengthening Scheme B, WRSSS C and Parbati Koldam Transmission Co. Ltd , a 74:26 joint venture with Power Grid. Adani Transmission will acquire 100% ownership in WRSSS B and C and 74% of PKTCL. The WRSSS B and C transmission projects and the stake in PKTCL were valued at Rs 1,000 crore each.