Adani Loses Nearly All Its Investment On Mundra Power Plant

Adani Power will transfer the Mundra plant to a subsidiary for an equity value of Rs 106 crore. 

Adani power’s Mundra Power Plant in Gujarat (Source: Adani Power Website) 
Adani power’s Mundra Power Plant in Gujarat (Source: Adani Power Website) 

Adani Group has lost nearly all its investment in the debt-ridden Mundra thermal power plant, the country’s largest coal-fired project, even as it looks for a strategic investor for the asset.

The Gautam Adani-led ports-to-mining conglomerate will transfer the 4,620-megawatt plant to its newly created subsidiary for an equity value of Rs 106 crore, according to its stock exchange filings. That compares with at least Rs 6,000 crore the group invested on the project, two analysts tracking the company said requesting anonymity. Adani Power Ltd. didn’t respond to BloombergQuint’s emailed queries on its investments in the Mundra project.

The power plant accounts for nearly half of Adani Power’s Rs 50,000 crore debt as of March, according to its filings. The company decided to transfer the project to a step-down subsidiary, making Adani Power the holding company for the group’s power assets. The proposal comes up for shareholder approval on September 20 through the National Company Law Tribunal.

Troubles for the project mounted after the Supreme Court in April didn’t allow the company to increase tariff to compensate for the higher price of coal imported from Indonesia. It relied on imported coal for more than 60 percent of its fuel requirement. Adani Power wrote off more than Rs 4,300 crore it had accounted for as compensatory tariff in the last two years, according to its disclosures.

The group is trying to ring-fence Adani Power, which has 10,480 MW operational capacity, from the Mundra plant. It hopes to sell a majority stake in the new entity, Adani Power (Mundra) Ltd., to a strategic investor, the exchange filing said. It will be 99 percent owned by Adani Power and the rest by Adani Power (Jharkhand) Ltd.

The project will be transferred on a slump-sale basis to the new company, which will issue 10.6 crore shares of a face value Rs 10 each, giving it an equity value of Rs 106 crore, Adani Power disclosed in its filing. Here’s how the company worked out the valuation.

Mundra plant has an enterprise value of Rs 22,475 crore. Its debt stands at Rs 21,707 crore. Factoring in cash of Rs 338 crore, the valuation works out to Rs 106 crore.

The transaction will not have any impact on any of the shareholders since it is an internal transfer to the subsidiary, said chartered accountants BSR & Associates, which prepared the valuation report.

Adani Power will turn from a power generating company to an entity to route investments into new power projects. The asset transfer will allow the company to source its funding more efficiently for capacity expansion or acquisitions, Adani Power said.

Of the 16.60 metric tonne per annum of coal required, Mundra plant was expected to source 10.2 MTPA from Banyu mines in Indonesia. For the remaining 6.4 MTPA, it has a fuel supply agreement with subsidiaries of Coal India Ltd and was allocated the Jitpur block in Jharkhand.

The Mundra project has long-term power purchase agreements for 80 percent of its capacity with Gujarat and Haryana power distribution utilities and intends to sell the remaining 20 percent in the spot market.