Audit firms vying for advisory mandate for R-Power's Jaypee deal

Leading audit and financial advisory firms, including Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers, are in talks with Reliance Power to get the "financial due diligence programme management" and "merger integration advisory" mandate from the Anil Ambani group to support it in its acquisition of three hydroelectric power plants from Jaypee Power Ventures Ltd.

The advisory deal, which is to the tune of Rs 10 crore, is expected to be one of the largest in this sector. A few days ago, Reliance Power piped its competitors to acquire the entire hydroelectric portfolio of the Jaypee group, which included the 300 Mw Baspa Stage 2 in Himachal Pradesh, the 1,091 Mw Karcham Wangtoo plant in HP and 400 Mw Vishnuprayag plant in Uttarakhand. The total portfolio that is being acquired will add in 1,800 Mw of additional capacity for Reliance Power. The company already has about 5,000 Mw of hydroelectric power assets in various parts of the country. A Reliance Power spokesperson declined to comment on the mandate.

A spokesperson at KPMG said, "We don't comment on any specific company or individual; hence, we will not be able to respond to your queries as per our policies." Deloitte declined comments, while emails to EY and PwC remained unanswered till the newspaper went to press.

The deal is valued at Rs 12,000 crore, which is higher than what Abu Dhabi National Energy Company had earlier valued at Rs 9,689 crore. The company had a few days ago pulled out of the deal after which the Adani group also had shown interest. The Anil Ambani group has already set up a wholly-owned subsidiary of Reliance Power, which has been christened as Reliance CleanGen, to take over the assets.

According to sources, Reliance Power will take over around Rs 9,500 crore of the debt in these three plants, while the remaining Rs 2,500 crore will be infused as fresh equity in the new company. To finance the equity portion, it is in talks to rope in a minority financial investor apart from putting in money through its own internal accruals.

Reliance Power has cash reserves of around Rs 3,000 crore and is generating cash of Rs 1,500 crore annually. The company is also expected to refinance the debt, which has high rate of interest with cheaper debt of a longer maturity in order to reduce the interest outgo. Experts say one of the sources could be Chinese banks with which the group has had close relations and have received long-term loans at attractive interest rates.

In the power sector also, Reliance Power has bought bulk of its power equipment for its 400 Mw Sasan power plant from China, which has been supported with cheap loans from the country.