$1.8 bn of PE money at stake

Global investment and advisory firm, Blackstone Group, has alone put in $621 mn into three power firms

The ongoing turmoil in the Indian coal sector is not merely about suspect allocations and inept domestic companies that have failed to utilise their captive assets.

At stake is also about $1.8 billion of private equity (PE) money that has been brought into the thermal power sector between 2008 and 2012, according to Venture Intelligence, a research service focused on PE and M&A.

Of this $1.8 billion, Blackstone Group, the New York Stock Exchange-listed global investment and advisory firm, has alone put in about $621 million into three Indian power sector companies, some of which are now in the eye of the coal allocation storm unleashed by the recent CAG report.

Two of these investments, in Moser Baer's Energy Business and Monnet Power, come under the portfolio of Blackstone India, while the other, in SKS Ispat and Power, was made through Sithe Global, controlled by Blackstone Group.

Yet, Akhil Gupta, senior managing director, Blackstone India, asserted that the coal allocation storm would not hit its own investments. “We have no information that suggests that any of our investee companies are impacted by this development," he said in reply to an emailed questionnaire from Business Standard.(Click here for infographic)

Blackstone’s involvement in the sector started in July 2010, when it announced that it would invest ~275 crore, or about $60 million, for a 12.5 per cent stake in Monnet Power Company Limited, a fully-owned subsidiary of Monnet Ispat & Energy Limited (MIEL). The firm is developing a 1,050 Mw coal-fired power plant in Odisha backed by pit-head captive coal mines.

These mines include the Mandakini-A block, which has been flagged in the CAG’s August 17 report as one of the non-operating opencast mines allocated to private firms, and MIEL is likely to appear before the Inter-ministerial Group to explain why production has not started for their allocated assets.

Then, in August 2010, Moser Baer Projects Private Limited (MBPPL), founded by Deepak and Ratul Puri of Moser Baer India Limited, secured ~1,350 crore ($300 mn), from Blackstone for establishing 5,000 Mw of power capacity by 2016, of which 4,000 Mw would be from thermal generation.

Although MBPPL has not featured in the CAG report, the Chhattisgarh High Court yesterday cancelled land allocation for four projects, including the company’s 1320-Mw power plant in the state. Coincidentally, the high court order also involves another firm — SKS Ispat and Power — that has investments from Blackstone.

In August 2011, Blackstone invested in SKS Ispat and Power, worth about $261 million, according to Venture Intelligence. This was made through Sithe Global, an international power generation development company, where Blackstone Group holds 99 per cent interest.

However, doubts have arisen in the allocation of two coal blocks in Chhattisgarh to SKS Ispat and Power Limited, in which Union minister Subodh Kant Sahay’s brother, Sudhir Kant Sahay, was a director. The Bharatiya Janata Party has alleged that Sahai used his position to obtain the coal blocks, after producing a letter written on February 5, 2008, by Sahai to Prime Minister Manmohan Singh asking for the latter’s “personal intervention”.

After plowing in more than $600 million into India's thermal power sector, all may not be well with Blackstone’s pricey investments. For other PE players, too, it could be much of the same.