NTPC To Buy State-Run Peers Neepco, THDCIL For Rs 11,500 Crore

The Hume Power Station, operated by Green State Power, stands at the Hume Dam near Albury, New South Wales, Australia, on Wednesday, Dec. 18, 2013. New South Wales is seeking expressions of interest for Green State Power’s 105-megawatt worth of renewable generation capacity. Photographer: Ian Waldie/Bloomberg

NTPC Ltd. agreed to buy controlling stakes in two state-owned hydel electricity producers—North Eastern Electric Power Corporation Ltd. and Tehri Hydro Development Corporation India Ltd.—adding a combined Rs 11,500 crore to the divestment kitty even as the government stares at a budget deficit.

India's largest power producer will acquire 100 percent in Neepco for Rs 4,000 crore and 75 percent in THDCIL for Rs 7,500 crore by March 31, according to an exchange filing by state-run NTPC.

India revised its divestment target for 2019-20 to Rs 65,000 crore from Rs 1.05 lakh crore after it could not complete the ambitious privatisation of some state-run firms. It has so far garnered Rs 34,845 crore through stake sales, the government data showed. To be sure, NTPC's buyout is similar to Oil and Natural Gas Corporation Ltd.'s acquisition of refiner Hindustan Petroleum Corporation Ltd. that helped the government beat the divestment target in FY18.

The government owns 51 percent stake in NTPC, 100 percent in Neepco and 75 percent stake in THDCIL, while the rest held with the Uttar Pradesh government.

The Cabinet Committee on Economic Affairs approved the NTPC's buyout of state-owned peers in November and NTPC's board approved the deal on Jan. 27. Approvals by the Securities and Exchange Board of India and the Competition Commission of India followed in February.

NTPC will acquire 360 crore shares of Neepco at Rs 11.08 apiece held by the central government and its nominees, and 2.73 crore shares of THDCIL at Rs 2,746.31 per share, it said in exchange filing.

Neepco's capacity will rise by 600 MW after the Kamseng Hydroelectric Project gets commissioned, it said in a statement. For THDCIL, a project with aggregate capacity of 2,838 MW, is under various stages of implementation.

The acquisition would give NTPC a toehold in the renewables segment with 5 gigawatt of generation capacity, of which 3 GW is operational, Swarnim Maheshwari, analyst at Edelweiss, wrote in a note. The project would be value accretive if the consideration is more than Rs 10,000 crore, as per base case scenario, he said.

Rupesh Sankhe, vice president of research (power and renewables) at Elara Capital, told BloombergQuint that the acquisition, at Rs 11,500 crore, is below the combined book value of THDCIL and Neepco at Rs 15,000 crore. “The deal is at a 25 percent discount to the combined net worth (of the two companies) and looks reasonable considering its return on equity and price-to-earnings ratio of 9.3 times for financial year 2019.”