Adani buys Avantha plant, becomes largest private power utility

The Adani Group on Monday announced the acquisition of Avantha Power's Korba West power project in Chhattisgarh, in a deal estimated at Rs 4,200 crore. The project comprises 600 Mw of operating power plant and the planned addition of a 600-Mw unit. The group said in a statement issued from Ahmedabad that this acquisition had made Adani Power the largest private power utility in India, with an installed capacity of 11,040 Mw.

The deal, coming within days of State Bank of India's in-principle approval for a $1-billion loan to Adani's Australian coal mine project, gives the group a big push in the power business.

This is another big acquisition for the group in the power industry after it took over a 1,200-Mw plant from Lanco Infratech in August in a deal valued at Rs 6,000 crore.

Monday's deal would allow the Avantha group to reduce debt incurred for financing power projects, an industry source said. The group had borrowed from private equity firm Kohlberg Kravis Roberts, mutual funds and other lenders and has been under pressure to retire debt as its power projects are behind schedule. A planned initial public offering did not materialise, "hence the stake sale", the source added.

The Adanis did not reveal the size of the deal or how it would be funded, but the Avantha group said the Korba West Power Company was valued in excess of Rs 4,200 crore.

"This is time for consolidation in the power sector and Adani Power has taken the lead in acquiring assets that are a strategic fit to group businesses and potentially at the lowest end of the cost curve," Adani Group Chairman Gautam Adani said in a statement.

"This acquisition consolidates our pan-Indian presence and reaffirms our belief in the reforms processes under way in the power and coal mining sectors. This acquisition expands our footprint in the coal mining belt and we are bullish about expanding our presence further. We are committed to achieving our target of 20,000 Mw by 2020," Adani added.

He said Adani Power would endeavour to expand the capacity of the Korba unit expeditiously, leveraging its project execution capabilities.

"This recent acquisition is a precursor to many the industry is likely to see in the near future, with one or two project companies exiting the space and emergence of seven or eight large utilities on global lines," said EY Vice-President Rupesh Agarwal.

"The interesting aspect will be to see how these larger independent power producers are able to finance such acquisitions against the backdrop of continuing sector challenges, leveraged balance sheets and exposure of Indian lenders to the power sector," he added.

The Avantha group was to commission two phases of 600 Mw each of the Korba project by the second quarter of 2013-14. It has commissioned only one so far. Also, 1,200 Mw of the group's Jhabua power plant, which was to become operational by the fourth quarter of 2013-14, is under implementation.

The Avantha group had plans to build a 1,320-Mw thermal power plant in Gujarat and a memorandum of understanding was signed with the state government in 2009. The group's website offers no details on the status of the Gujarat project. A spokesperson for the Avantha group did not respond to a query seeking details of its projects.