JSW Energy finds itself in an accidental 'lender' role

Company has extended loans to two acquisition targets where deals are now in a slow lane

As the clock is ticking, two of JSW Energy's big acquisition targets in the power sector are moving farther from a possible deal closure. In the scenario of the deal not fructifying, JSW Energy might be left in the uncomfortable role of a lender of two stressed assets.

JSW Energy's accidental journey from a potential buyer to lender started more than a year back in 2016. The year saw the power producer agree to acquire two assets in two separate deals — Jaiprakash Power Ventures's Bina power plant in Madhya Pradesh and Jindal Steel and Power's Tamnar power plant in Chattisgarh. In due course, JSW Energy also extended a loan to both the companies — Rs 1,000 crore to Jaiprakash Power and Rs 500 crore to Jindal Steel and Power — as part of two separate deal arrangements.

This exposure, however, is now slowly turning into a concern as the deals face closure issues. The concerns are larger over JSW's exposure to Jaiprakash Power, compared to Jindal Steel and Power.

An email query sent to JSW Energy on Wednesday requesting security details on these loans remained unanswered.

"The primary condition is the lender approval of those companies and where we are not getting a very good colour at this point in time and that's why we are saying they are on the slow burner. However, what we see that good organisation are committed towards it, but the probability of getting the transaction through are going lower and lower," Prashant Jain, the company's newly appointed joint managing director and chief executive officer for JSW Energy informed analysts in an earnings call last week.

Jaiprakash Power Ventures is currently going through a strategic debt restructuring (SDR) process and Jindal Steel and Power also figures in the stressed asset list of the Indian banking system. This has left analysts and industry experts concerned on the debt servicing and repayment of the loan extended, in the event of the deal not fructifying.

"The company says they are sure of recovery, but surely it is a concern," said an analyst with a domestic brokerage firm.

Similar concerns were raised in the analyst call last week referring to JSW's seniority in the list of lenders to Jaiprakash Power in the case of recovery. For now, the company has assured its investors, there is no reason to worry. "I think this loan when it was given, there were several rounds of discussion both with JPVL as well as lenders and there is an understanding that we have that you will get priority treatment to this loan in terms of servicing," company officials told analysts on the call. The officials added," it's been more than 2.5 months now. That's a good reflection, proof of the pudding lies in the eating, so this is being serviced and I can tell you I don't have to call them for servicing the loan."

To be sure, JSW Energy did not choose its lender role willing. "JSW is stuck between a rock and a hard place," said Amit Tandon, founder and managing director of proxy advisory firm IiAS. Tandon further added the company may not have anticipated the deal to hit a rough patch when the loan was agreed to.

Not just recovery, JSW Energy's loan to these companies has also left the analyst community upset over the rationale to utilize its cash. "As an investor one is investing in a power generation company, why should it use its cash as a lender or a life-support system to another company," said a second analyst with a domestic brokerage firm who did not wish to be identified.