Some really big trades in the last few days without much price change. Would imply institution selling and probably another holder snapping them up. That might explain some of the downward drift to date. If that's what's happening there will be a time when the seller stops and a turnaround starts.
Hi Wuffle / all, I do not disagree in the fundamentals, things have only got better for this firm over the last year or two. But we have seen share price fall in half! discussion that they were cheap happened at 100p, 90p, 80p, 70p, 60p have all taken place! Anyhow that chat may been to take a back seat to the Lanco deal . . . .
As per the revised reorganisation scheme approved by the lenders, the business of the listed entity, Lanco Infratech will be split into three: The new power holding company that OPG Power Ventures seeks to acquire will have all the coal-based power assets. The engineering,procurement and construction business will be demerged into a 100 per cent subsidiary, and the rest of the businesses including natural resources, real estate, roads, solar and gas will continue as subsidiaries or will be held by special purpose vehicles of the parent. -
A quick skim of the most recent Lanco annual report and it looks like they have made a right mess of running these assets. They have extended loans to cover cost overrun, completed power stations have been mothballed because no coal has been available. The unfinished stock is indicated to be due for completion FY17 and FY18 and some details of their current status are available on Lanco's site but you have to assume that these are in a spot of bother also. It appears that the lenders have done a debt for equity job on Lanco and are in control. A consortium of lenders really would need a partner to untangle this mess so it is evident why OPG have been approached though the scale is a bit daunting. They would appear to need Mr Gupta more than he needs them. He can walk if the deal isn't good enough. It will need to be spectacular to balance the huge increase in risk.
The accountants have been under pressure, we know why the annual report is delayed.
I note that some numbers in the Economic Times article don't add up.
Some are consistent but there is a paragraph outlining a plan whereby OPG put in 150 crore (16m sterling) and arrange for a further 1,500 crore of equity to complete the projects - looks wrong. This does not match the overall EY estimate of value of 5,300 but it may be a typo as 2,500 would add up perfectly though I would have thought that the estimate was 'as is' otherwise they are only paying 16m sterling for the 51% of the existing output which can't be right. The article indicates that the debt of 5,200 would be transferred to the power holding company pending the arrival of the new equity from OPG.
We shall have to see what is really going on here. There is an element of consistency and some interesting bits of info but also enough errors to bring doubt. Wait and see.
The key figures in the articles are OPG pay �300m for a 51% stake in 5760Mw of output, only some of which is complete.
This makes it enormously difficult to value. These projects go from being risky building projects to steady infrastructure situations as they are completed and the amount of money that can be sensibly borrowed against them changes.
OPG have 750Mw of completed power with visible earnings.
They would be buying 51% of;
Anpara at 1200Mw which is up and running. Amarkantak at 600Mw which I think might be up and running and 1320Mw which isn't. Vidarbha at 1320 which isn't. Babandh at 1320 which isn't.
So, about half of the total OPG output would appear to be running with visible contracts with the potential to be borrowed against. OPG were worse than that pretty recently. �300m clearly wouldn't be the end of it in terms of expenditure, just the start in fact but that could be managed.
I think my conclusion is that it may be possible to finance this. Mostly because some of it is revenue generative otherwise it would have been far too big a bite. The variable is the extent to which the incomplete projects are,indeed, incomplete and we can only guess.
As an aside, the recent disposals might be completely unrelated. Or loads of conspiracy theories can be imagined. Is it a straightforward - oooh I don't like the look of this? Is it an interested party selling a few to change the terms of an offer?
This is quite a big deal really. This will end up being a decent chunk of the Indian power market with earnings stretching out decades. Worth a bit of manipulation to suit your ends in the long run.
A quick Google reveals that this plant is a mix of newish and part completed. This is exactly OPG's area of expertise. Always tricky taking over someone else's projects but for the right price maybe worth the risk.
I have just caught up with the debate in 'the other place' about this potential deal. No view yet beyond maintaining my existing opinion that the management can do their sums. If it is value accretive compared to building new then why not. Good use of management time.
Yup agree. Their comes and engagement is not great but the deal they could pull off to, presumably, manage several 000MW of coal power could be very enhancing. So long as they don't issue shares, at least not here. And why would they? Presumably it is an asset management contract so little or no capital required. It's very cheap here. Very!
I am not really sure what you mean. The Guptas are looking to create a significant utility company in an economy which will be growing for decades. As of now the dividend will roll in and they can watch it grow. This is about dynastic wealth. The value will grow with the income it can generate and the NAV.
They own the perfect number of shares. They retain control but can leverage the full value of the company against commercial loans. Power stations are not cheap.
Everything OPG do is consistent with this outlook. Solar is about future proofing the business. The move to the main market is about being taken seriously as a significant infrastructure player. Pension fund long term investors, better financing for the next stage of expansion. Once the installed capacity is throwing off cash - see the Macquarie note, EBITDA of 85m in2018 - they will have plenty of options for expansion. I cannot see 55 p then, can you?
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