Reliance Infrastructure Limited (RInfra) has demerged some of its power generation and supply assets in Mumbai, Goa and Andhra Pradesh to its wholly owned subsidiary, Reliance Electric Generation and Supply Private Limited (REGSPL). To this end, the company has approved the Scheme of Arrangement between RInfra and REGSPL, and transferred its Mumbai power generation, transmission and distribution division; the Goa power station division; the Samalkot power station division; and the windmill division to REGSPL for a consideration of Rs 62.82 billion. Following the demerger, the shareholding pattern of RInfra and REGSPL would remain unchanged. Besides, REGSPL will not be listed separately. The demerger has been carried out as per Sections 391-394 of the Companies Act, 1956.
RInfra has operations across the power sector value chain as well as other infrastructure sectors including roads, metro rail and cement. It constituted REGSPL in 2008 under the name Daffodil Advisors Private Limited and renamed it REGSPL in March 2016.
As per RInfra’s filing with the Bombay Stock Exchange (BSE), the demerger aims to attract greater investments as the businesses of the parent company and the demerged assets entail different risk and return profiles and cash flows. Besides this, it aims at achieving operational synergies and better management control through a simplified and transparent business structure.
Details of the transferred assets
Of the demerged assets, the company’s generation, transmission and distribution division in Mumbai has the highest valuation at Rs 55.75 billion. In 2014-15, this division had an aggregate turnover of Rs 76.41 billion, constituting around 63 per cent of the total turnover of RInfra. The Mumbai generation business comprises the 500 MW Dahanu coal-based power plant at Palghar in Maharashtra. The transmission business comprises eight 220 kV extra high voltage substations with 3,000 MVA of transformation capacity and around 540 ckt. of 220 kV lines. The distribution business comprises 6,113 substations aggregating 3,287 MVA of capacity and around 2.94 million consumers (as of 2014-15).
Another asset transferred by RInfra is the 220 MW Samalkot combined cycle power plant (CCPP) at Samalkot in Andhra Pradesh. The CCPP, operating on natural gas as the primary fuel and naphtha/high speed diesel as the secondary fuel, is valued at Rs 5.63 billion. In 2014-15, its turnover stood at Rs 456.6 million, constituting around 0.38 per cent of RInfra’s total turnover.
Further, the company has transferred the 48 MW CCPP at Zuarinagar in Goa to REGSPL. The power station has been non-operational since April 19, 2013, and is valued at Rs 1.09 billion. In 2014-15, its turnover stood at Rs 417.1 million, constituting around 0.34 per cent of RInfra’s total turnover.
Besides this, RInfra has demerged its wind power business division. The company’s wind farms located at Chitradurga in Karnataka comprise 36 windmills with an aggregate capacity of 9.39 MW. RInfra’s wind business is valued at Rs 355 million. In 2014-15, its turnover stood at Rs 97.5 million.
The way forward
RInfra’s demerger of its power assets is in line with its aim of becoming a defence major in the coming years. To this end, the company has also recently sold off its cement business to Birla Corporation and is in talks to sell its road assets. Besides this, RInfra’s demerger is in sync with its target of becoming debt-free on a stand-alone basis by 2017. Its demerger also conforms to the asset-light business model being adopted by infrastructure companies in the country.