With the Central Bureau of Investigation (CBI) having filed a first information report against Navabharat Power Pvt Ltd in connection with the coal block allocation scam, its new promoter, Essar Power, is now running the risk of losing Rs 500 crore it invested in Navabharat’s 1050-Mw power project in Odisha.
The Ruias-promoted Essar Power on Wednesday said it acquired Navabharat in a "transparent" deal for a total consideration of about Rs 230 crore made in two tranches.
Following the acquisition, Essar Power has invested more than Rs 500 crore in developing the Odisha project and has also achieved financial closure. The project is currently awaiting certain government approvals, the company said in a statement.
Besides, ICICI Bank has underwritten debt financing of more than Rs 3,720 crore for the Odisha project.
Essar’s statement comes a day after CBI raided the offices of five companies, including Navabharat, and registered cases of criminal conspiracy and cheating against these in the coal allocation case.
Navabharat, then promoted by the Hyderabad-based businessman P. Trivikram Prasad and Y Harish Chandra Prasad, former chief executive officer of Lanco Power, had been allotted a coal block in January 2008, three years before the acquisition by Essar was concluded.
The company had signed a memorandum of understanding with the Odisha government for developing the project in June 2006. "The entire acquisition was carried out in a transparent manner with independent financial and legal advisors assisting the company in the process of acquisition. Essar Power categorically denies allegations that Navabharat was a ‘front’ company of Essar," said the statement.
Essar said it had no dealings with either of the original promoters until this transaction and the acquisition was in line with the company’s strategy of expanding its power generation business through both organic and inorganic means. "The transaction was negotiated over several months with the original promoters of Navabharat Power and was concluded after satisfactory completion of legal due diligence by J. Sagar and Associates and financial due diligence by Ernst and Young," Essar said.
The total agreed consideration was split between the promoters (who also held direct stake in Navabharat Power) and 100 per cent promoter owned companies, as per the agreements. The company said it was approached by a prominent Indian financial institution in 2009 to consider a potential transaction to acquire Navabharat Power.
Essar also said discussions with the merchant banker and the erstwhile promoters revealed that the power project had made substantial progress with most of the key regulatory approvals in place. In comparison to a greenfield venture, Essar Power expected to save more than two years time in completing the project and accordingly went forward with the acquisition. "As an established player in the power sector, Essar Power was at the time scouting for opportunities to expand its business through both organic and non organic route," said the statement.
