>JSW ENERGY - IPO NOTE (SHAREKHAN)

JSW Energy (JSWE), a part of JSW Group, is coming with a public issue of shares of Rs10 each. The company will be raising a maximum amount of Rs2,700 crore including Rs492 crore from anchor investors in the process. The company also proposes to offer retail applicants a discount of Rs5 to the issue price, which will be determined after the book building process.

Object of the issue
The net proceeds of the issue is proposed to be used to
■ Part finance the construction and development of identified projects aggregating to 2,790MW capacity; 400KV transmission project and mining venture;
■ Repayment of corporate debt; and
■ General corporate purposes.

Company background
JSWE is a part of JSW Group headed by Sajjan Jindal, which in turn is a part of OP Jindal Group. JSW Group has presence in steel, power, cement, software and infrastructure sectors with revenue in excess of Rs168,00 crore for the year ended March 31, 2009. JSWE was incorporated in 1994 with the objective to develop, construct and operate power plants. The company has been in the business of power generation since 2000 and its consolidated revenue increased from Rs1,326 crore in FY2008 to Rs1,852 crore in FY2009. The company is also involved in power transmission and plans to foray into power distribution space.

Power generation business
The company currently has 995MW of operational power generation capacity, with 2,655MW of generating capacity in construction/implementation phase. In addition, JSWE has power generation projects at early stages of development with proposed combined installed capacity of 7,740MW. The company sells power to state-owned utilities, power trading companies and some industrial consumers through power exchanges on a combination of long-term and short-term
power purchase arrangements (PPAs).

Power trading business
JSWE’s power trading business involves selling the power purchased from external power plants to the users and the company has been engaged in power trading activities since June 2006. The Central Electricity Regulatory Commission (CERC) has granted the company “Category F” license, the highest licence category, to trade power in India. Under applicable law, power trading companies in India are permitted to make profit of up to Rs0.04 per unit. JSWE purchased and sold 813.49 million units of externally generated power for the year ended March 31, 2009.

Sale of CERs
JSWE has already generated and realised 3.97 million certified emission reduction (CER) for its dual-fuel power plant at Toranagallu, Karnataka. The company also expects itself to be eligible for CER benefits for some of its projects, such as the 240-MW hydroelectric power plant at Kutehr and from the use of super critical technology at its projects under development. The company derived revenue of Rs327.6 crore from the sale of CERs during FY2008 on the CERS received for its operations during FY2001-06. The income statement has been restated to allocate the revenue from the sale of CERs to the respective years to which they relate.

Operation and maintenance services
JSWE also renders operation and maintenance services to Jindal Steel Works Steel Ltd (JSWSL)’s two captive power plants with installed capacity of 230MW under an operation and maintenance agreement. The five-year agreements for the plants came into affect in April 1, 2006 and is subject to extension by mutual agreement. The present fee payable under these two agreements for FY2010 is Rs77,990 per MW per month. The agreements provide for an increase in the fee at the rate of 4% per year. As performance incentive, JSWE is entitled to an incentive fee if the availability factor of the power plants exceeds 85%. The incentive fee is 25% of the percentage by which the actual availability factor exceeds 85%, which is then applied to the operator fee.

To read the full report: JSW ENERGY