Reliance Infra to sell 49% stake in Mumbai power distribution arm to Canada's PSP Investments
Successful completion of the deal will help the Anil Ambani-led company substantially de-leverage its balance sheet while retaining control of the business with a 51 percent stake
Reliance Infrastructure Ltd (R-Infra), the infrastructure arm of the Anil Ambani-led Reliance Group, is proposing to sell a 49 percent stake in its Mumbai power generation, transmission and distribution business to Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension fund managers.
In a statement issued on Monday, R-Infra said it has signed a non-binding term sheet with PSP Investments for the proposed divestment. “The specified business will be carved out on a going concern basis into a separate SPV (special purpose vehicle), in which R-Infra will control a 51 percent stake and PSP Investments will own 49 percent,” the company said in its statement.
R-Infra’s statement didn’t disclose the valuation at which PSP Investments will be picking up a 49 percent stake in the Mumbai power distribution venture. R-Infra’s Mumbai power distribution business (known as Reliance Energy) distributes power to nearly three million residential, industrial and commercial consumers in Mumbai’s suburbs, covering an area of 400 sq km, and catering to a peak demand of over 1,800 MW, with revenues of Rs 7,700 crore in FY2014-15. The Mumbai power distribution business is R-Infra’s biggest, in terms of topline, and accounts for 44 percent of the company’s consolidated turnover, which stood at Rs 17,198 crore in 2014-15.
The proposed transaction is subject to due diligence, and regulatory and other approvals. R-Infra and PSP Investments have entered into an exclusivity agreement valid till March 31, 2016.
R-Infra’s statement said the proceeds from the stake sale, if it goes through successfully, will be utilised to pare the company’s debt. According to R-Infra’s 2014-15 annual report, the total indebtedness of the company stood at Rs 17,034 crore.
According to a person familiar with the development, who spoke on condition of anonymity, at least half the debt on the company’s books is on account of the Mumbai power transmission and distribution assets, which will be transferred into the new SPV to be formed (along with these assets).
With the cash component that R-Infra will receive as part of the deal, it may further pare debt at the level of the parent company, this person said.
The stock market gave a thumbs-up to the deal; R-Infra’s share price rose by 5.84 percent on the BSE on Monday to close at Rs 417.05 per share. The bourse’s benchmark index, Sensex, gained 0.58 percent to end at 25,760.10 points.
