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JSW Energy's $418-million CIC Energy deal called off

Arijit Barman & Katya Naidu  |  Mumbai 

Eight months after signing a definitive agreement with the management of Canadian resources company CIC Energy to buy them out and take control of the Toronto-listed company, Sajjan Jindal’s JSW Energy has backtracked from the $418 million (Rs 1,890 crore) deal.

The exclusive agreement between the two has lapsed, and after its board meeting CIC informed the exchanges late on Tuesday that it would now engage in selloff negotiations with other potential bidders. Even though technically JSW still remains in the picture, sources privy to the negotiations said, “For all practical purposes, the deal between the two is off.”

"It is disappointing that after almost eight months, the transaction with JSW had not been completed despite several extensions to the original deadline," said Greg Kinross, president of CIC Energy, in a statement to the Toronto Stock Exchange.

CIC Energy intends to open its data room to potential acquirers and said it has already received several expressions of interests. It is expected that CIC Energy advisors, Motilal Oswal and Deutsche Bank Securities will begin speaking with the advisors of prospective acquirers shortly.

CIC Energy has an A-grade mining cum power complex called Mmamabula Energy Complex in Botswana, Africa. The Mmamubala coal field is estimated to have 2.6 billion tonnes of high thermal coal, mostly above 6,000 kcal/kg of calorific value. Within the next three-four years, it is expected that around 24 million tones of coal can be extracted every year. Along with the mines is the proposed coal fired power plant as well and a coal-to-hydrocarbons project.

Though the deal would not have given JSW Energy an immediate access to feedstock, the coal linkage was to help it mitigate its raw material risks. It would have given it a cushion against coal price fluctuations as it currently sources its entire coal requirement from the spot market. Increase in spot coal prices has contracted the company's profit margins as it posted a 25 per cent drop in net profit in the fourth quarter in spite of a 73 per cent increase in its revenues.

JSW Energy has 995 megawatts (Mw) of operational generating capacity but is adding another 2145 Mw. By 2015, it plans to have a combined installed capacity of 11,390 Mw.

Why then did JSW walk out?
JSW’s management refused to elaborate but said funding was not the issue. L K Gupta, CEO, said, "The conditions laid down for the deal were not fulfilled, and CIC also did not ask for an extension. So, the merger cannot proceed."

But sources privy to the negotiations said, the deal that was expected to get concluded by February got postponed on three sticky points. To begin with, the mining license was up for renewal in March; JSW wanted to set up a power plant in Botswana for the rail links to the ports to be functional; and it wanted all outstanding issues with Golden Concorde Ltd (GCL), an erstwhile partner of CIC, to be settled before the deal was signed.

While most of the conditions were met, JSW apparently developed cold feet and wanted more changes in the drafts.

First Published: Wed, June 01 2011. 00:12 IST