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Merger talks between energy companies Orient & IL&FS hit a snag

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Source: The Economic Times
Friday, September 08, 2017

 BENGALURU: Merger talks between wind energy companies IL&FS Wind Energy and Shriram Group’s Orient Green Power have hit a roadblock because wind energy tariffs have plunged in auctions conducted after the negotiations began early this year, people close to the development said. 

The period of exclusivity for negotiating the merger that would have created the country’s largest listed wind energy company has ended and both parties are now looking at other options, they said. Orient Green Power (OGPL), however, said a deal is still possible. 

“Merger talks have not yet been given up,” said T Shivaraman, vicechairman at OGPL. “If they are taking longer than usual, it is because we have been preoccupied with the separation of our biomass business from the wind business,” he said. He said the company has now completed formalities of separating the two businesses by selling the biomass business to its holding company Shriram Ventures Ltd (SVL). “We are now a pure wind company,” Shivaraman said. 

A 90-day exclusivity period for talks that began early this year after OGPL informed the stock exchanges of the proposed merger was later extended by another 90 days, which ended in August. Sources close to the development said Japan’s ORIX Group, which increased its stake in IL&FS Wind Energy to 49% in March, has been alarmed by the recent developments in the wind segment. 

With the wind tariff dropping sharply to Rs 3.46 per unit in auctions held in February, a number of state discoms have been trying to avoid signing power purchase agreements (PPAs) committed to earlier at higher tariffs. 

Unlike OGPL, IL&FS Wind Energy sells most of its power to discoms, and ORIX wants matters to settle down before taking any major corporate decisions, sources said. IL&FS Wind Energy has a portfolio of 775 mw of wind assets with another 228 mw in the pipeline. Also, a large part of OGPL’s wind assets of 425 mw consist of group captive power plants which have been affected by the new guidelines relating to such plants, sources said. 
Group captive plants — which can be thermal, solar or wind — supply power to a fixed group of consumers and not necessarily to discoms, thereby avoiding various additional transmission-related charges. The Electricity Act, 2003, requires fixed consumers to buy at least 51% of the power produced by such plants and collectively hold at least 26% equity in them. 

There were some ambiguities about such shareholding that have now been removed, forcing many developers of such plants to rework their equity structure. The sources, however, denied reports that the deal came unstuck over tax issues or differences on valuation. 

It was suggested by some that a budget proposal this year imposing long-term capital gains tax on mergers and acquisitions entered into by listed companies outside the bourses – thereby avoiding securities transaction tax – had proved a roadblock for the talks between OGPL and IL&FS Wind Energy. 

“The companies’ lawyers had found a way around it by appropriate drafting of the merger contract,” one person close to the development said. “As for valuation, talks never got that far.” Shivaraman of OGPL emphasised that the merger would have been advantageous, creating one of the largest wind energy companies in the country with 1200 mw capacity and another 270 mw odd in the pipeline. OGPL also has around 45 mw under construction. 


By JimmiNil

By JimmiNil

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