Looking for Buyers

RInfra offers 51 per cent stake in its Delhi discoms to become debt-free

In a move to sell assets and become debt-free, Reliance Infrastructure Limited (RInfra) has put up its 51 per cent stake in the Delhi power distribution business up for sale. RInfra is looking for buyers for its two discoms, BSES Rajdhani Power Limited (BRPL) and BSES Yamuna Power Limited (BYPL), which cater to around 4.4 million consumers in Delhi. The proceeds from the asset sale will be utilised to pare RInfra’s debt. It aims to become a zero-debt company in the next financial year. Earlier, in August 2018, RInfra completed the sale of its Mumbai power distribution business to Adani Transmission for Rs 188 billion.

About the assets

The three Delhi discoms, namely, BRPL, BYPL and Tata Power Delhi Distribution Limited, were privatised in July 2002. The distribution firms are joint ventures with the Delhi government, which owns a 49 per cent stake in each of them. BYPL

caters to central and east Delhi, whereas BRPL supplies electricity in south and west Delhi. Together, the two discoms supply electricity to around 4.4 million customers in the national capital. During 2019-20, BSES registered an aggregate income of Rs 172.06 billion, an increase of 5.9 per cent over the previous year.

Buyer prospects

Reportedly, the Italy-based Enel Group, Torrent Power Limited (TPL) and the Greenko Group have submitted non-binding offers to buy RInfra’s Delhi distribution businesses. The companies have put in their initial offer after assessing the technical data room of the discom. RInfra is currently undertaking the due diligence of these bids. Interestingly, TPL is one the earliest private utilities to enter power distribution and it currently holds distribution franchisees in Surat and Agra, among other places. The company has been looking at expanding its footprint in the segment. Meanwhile, the General Insurance Corporation (GIC) and the Abu Dhabi Investment Authority (ADIA)-backed Greenko is one of India’s leading renewable energy companies with an operational capacity of over 4.2 GW, diversified across wind, solar and hydropower projects. The acquisition could help the company in lowering BSES’s power purchase cost by switching to cleaner and cheaper fuel options. The Enel Group forayed into the Indian power sector in 2015, buying a majority stake in BLP Energy. Enel’s renewable arm owns and operates 172 MW of wind capacity in Gujarat and Maharashtra.

In May 2020, in a communication to the Delhi Electricity Regulatory Commission (DERC), NTPC, too, expressed interest in acquiring Reliance Infra’s 51 per cent stake each in BYPL and BRPL. The DERC, however, does not plan to intervene in the ongoing sale process of the Delhi electricity distribution businesses. According to sector observers, the acquisition could help NTPC in forward integration as it already supplies about 70 per cent of the discom’s electricity requirement from various sources. Apart from this, NTPC can retail electricity through its fully owned subsidiary, NTPC VidyutVyapar Nigam, which has the highest category of power trading licence that allows it to enter into power purchase agreements. NTPC has been looking to foray into the power distribution business for quite some time now. In 2019, it had formed an equal joint venture with Power Grid Corporation of India Limited, the National Electricity Distribution Company, which is a pan-Indian power distribution firm. Apart from these players, initial interest in the deal was shown by other investors as well including Caisse de dépôt et placement du Québec, Actis LLP and Brookfield Asset Management. In addition, several other entities such as the Tata Group, the Adani Group and CESC Limited were planning to bid for the distribution business, but backed out citing the high valuation sought by RInfra, considering the Rs 160 billion dues the two companies owe to electricity producers.

Conclusion

Although the successful bidder for RInfra’s Delhi distribution business is yet to be finalised, the stake sale has attracted significant participation from power sector companies. The two discoms serve a large base of residential and commercial users and a low base of industrial consumers. Meanwhile, the aggregate technical and commercial losses of the two discoms stand at 8-9 per cent, much lower than the national average of around 18 per cent (for UDAY states). Owing to these factors, the acquisition of RInfra’s stake in the Delhi distribution business makes good business sense. That said, there is an overhang of regulatory assets worth around Rs 300 billion, which are yet to be approved by the regulator. Besides, there has been no tariff hike in the past four years and the status quo is likely to prevail in the near future.

Net, net, the power distribution segment could be looking at greater competition in the next few months with the government’s announcement of privatisation of power distribution in union territories. The upcoming bidding for the privatisation of discoms is expected to witness good participation from power companies.

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