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QIA picks up 25% in Adani’s Mumbai power utility biz for Rs 3,200 crore

Adani Electricity Mumbai Limited is a wholly owned subsidiary of Adani Transmission

, ET Bureau|
Updated: Dec 12, 2019, 10.35 AM IST
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Qatar Investment Authority picks 25% stake in Adani Transmission arm
Qatar Investment Authority picks 25% stake in Adani Transmission arm
Mumbai: Adani Transmission Ltd on Wednesday said it will sell 25.1% stake in its arm Adani Electricity Mumbai Ltd (AEML), — the flagship power transmission and distribution asset in Gautam Adani’s empire, to Qatar Investment Authority for around ₹3,200 crore.

The 14-year-old sovereign wealth fund of the oil-rich Gulf nation will pay Rs 1200 crore to buy a quarter of the company’s common equity. Additionally, QIA will also be paying Rs 2000 crore as staple shareholder loans or subordinated debt (preferred equity) of Rs 2000 crore, valuing the business at Rs 16,800 crore, inclusive of its debt.

Both sides have signed a definitive agreement, the companies said in regulatory filings and expects to be complete the transaction in early 2020 after obtaining regulatory approvals.

ET was the first to report about this impending transaction in its edition dated September 20. It also broke the news online on Wednesday afternoon ahead of the formal announcement.

AEML, the country’s largest private sector integrated power utility, is a wholly owned subsidiary of Adani Transmission. In August 2018, Anil Ambani sold his Mumbai power distribution business, perceived to be his crown jewel to Adani Transmission Ltd (ATL) for Rs 12,100 crore, allowing the latter to enter the discom business. Subsequently, the Mumbai business got housed under a dropdown subsidiary.

ATL is 74.92% owned by Adanis and 25.08% by public shareholders. After the transaction closes, ATL will own 74.9% in AEML.

Capture

AEML is the licensee for an integrated power distribution, transmission and generation business that currently serves more than 3 million consumers across a license area of approximately 400 square kilometers in the city of Mumbai, the world’s seventh largest city by size of population. AEML’s market share of Mumbai is approximately 87% by license area, 67% by consumers served and 55% by electricity supplied. The Mumbai licence area has two 250 MW coal based generation power plants at Dahanu. Under the deal, more than 30% of the supplied electricity will be sourced from solar and wind power generation by 2023. AEML’s licence is valid till 2036 and has long term PPAs upto February 2023 with Mumbai distribution business.

The businesses operate under a cost plus fixed ROE regime subject to maintenance of operational parameters above normative levels. The licence area has earned 17-18% return on equity from the business through better operations.

“Adani Electricity Mumbai Limited is the best-in-class electricity utility in India and has tremendous potential for growth,” said QIA Chief Executive Officer, Mr. Mansoor Al-Mahmoud. “This investment demonstrates our confidence in India, with whom Qatar shares deep-rooted ties and excellent relations”.

The funds are likely to help provide growth equity to the business to fund its capex and also deleverage the balance sheet. The company has already earmarked a capex of Rs 1,200 crore for maintenance, upgrade of its existing distribution network and capital addition. It will also help improve reliability of connected bulk supply to the financial capital which over a period of time has reduced due to the shutdown of multiple units in Trombay even as load has doubled on increased power consumption of retail and industrial users.

The revenue and profit of Adani Electricity Mumbai stood at Rs 4396 crore and Rs 102.56 crore respectively in FY19. It had a total borrowing of Rs 8427 crore at end FY19, according to Adani Transmission’s annual report. On the consolidated basis, the assets of Adani Electricity constituted 28% of the total asset of the company in the last fiscal year while the cash and cash equivalent stood at Rs 374 crore for AEML.

“Together, we will continue to work towards improving the reliability of supply and consumer satisfaction of AEML’s consumers,” said Gautam Adani, chairman of Adani Group. “This marks the start of a long term partnership with QIA.”

Most analysts believe as the entire power distribution sector is poised for a reorganisation, both sides will together bid to win new circles as the government looks to privatise the space. “Today power distribution business is 89% government owned. In the next 30 years, it can potentially reverse. The appetite of marque global investors to partner India’s infrastructure story is a signal that if the government relaxes its grip and unleashes public private partnerships, then investor are willing to come on board,” said a sector analyst who refused to get quoted. “The government is losing Rs 10,000 crore every year in power distribution sector alone . The entire value chain suffers due to this.”

As a group, Adanis have been looking at strategic partnerships across gas distribution, petrochemicals, renewables with high profile players like Total, BASF to de-risk its portfolio. High promoter shareholding in most group companies also gives them the comfort to dilute equity in favour of financial or strategic partners.

Last month, Total agreed to buy a 37.4% stake in Adani Gas to create one of India’s largest downstream energy partnerships in city gas distribution. The move will eventually see the French energy giant become an equal equity partner in the company along with promoter Gautam Adani. Interestingly, QIA is also an investor in Total SA.

“Adanis are marrying their own expertise in infrastructure development with inter-generational investors who help de-risk procurement, sourcing, infuse technology and strategic inputs other than financial assistance,” said an old time group watcher on condition of anonymity.

The sovereign wealth fund with about $320 billion in assets, has been diversifying into the U.S. and Asia by creating a unit to scour for opportunities in emerging markets in Latin America, Africa and Asia in an effort to snap up stakes in companies directly in what seems to be a throwback to their swashbuckling deal appetite in the last decade. They are also deploying more resources at home. The wealth fund owns stakes in companies ranging from commodities giant Glencore Plc to Barclays Plc and Volkswagen AG, as well as holdings as varied as luxury Italian fashion houses, soccer team Paris Saint Germain and residential and office properties in Manhattan and London. In infrastructure, it is a partner in Hong Kong’s power utility company, owns distribution assets in Australia and has large exposures in airports around the world. In India its recent investments include Bharti Airtel’s Africa business, Byju’s and successful exit from RMZ.

SKN Advisors Ltd. acted as financial adviser to Adani on the deal, while Cyril Amarchand Mangaldas was its legal adviser, according to the filing. JPMorgan Chase & Co., Cleary Gottlieb Steen & Hamilton LLP and AZB & Partners advised QIA.

Adani Transmission dropped as much as 4.8% after the announcement, before reversing losses to trade 1.6% higher at the end of trading day.
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