• News
  • Columns
  • Interviews
  • BW Communities
  • BW TV
  • Subscribe to Print
BW Businessworld

BW Edit: Power Rally

Photo Credit :

Positivity is back on the deal street with the two bumper-to-bumper acquisitions --- Anil Ambani-controlled Reliance Power’s acquisition of Jaypee’s three hydel power projects at RS 12,000 crore and Adani Power’s Rs 6000-crore buy of Lanco’s 1,200 MW Udupi thermal power plant. But there are some unconsidered facts behind both the deals.

Both are not small deals even for an economy that just got a boost with the arrival of a development-focused union government. But the main question is how is it that the power sector has become so hot for investment, given it is still under government surveillance. There has not been any policy change, suddenly attracting investments by offering high returns.

Another baffling fact is that the two companies that went out for mega spends are cash-strapped ones. Reliance Power, which has two unrealised and one partly realised ultra-mega power projects (UMPPs) in its kitty, depends highly on the Chinese market for equipment and borrowing. It has a gross debt of over Rs 27,000 crore. The company’s only financial edge is its Rs 11,700 crore IPO in 2008. Adani Power has a debt of around Rs 22,000 crore.

Despite the weak numbers, both the groups have shown signs of revival at the stock market during the elections and continued the rally afterwards. The fact is that the new deals will revive the momentum in the mergers and acquisitions (M&A) market. But maintaining the steam is going to be the toughest task since the other business houses are still behaving conservatively.