IVRCL sells Chennai desalination plant for Rs150 crore

Mumbai/Hyderabad: Hyderabad-based infrastructure firm IVRCL Ltd on Thursday said that it has entered into a binding agreement to sell its entire equity stake in Chennai Water Desalination Ltd (CWDL) to Dubai-based water and power utilities provider Utico FZC for Rs.110 crore.

IVRCL holds a 75% in CWDL, while Befesa, a unit of Spain-based energy, transportation and telecommunication conglomerate Abengoa SA owns remaining 25%.

CWDL is a special purpose vehicle formed by IVRCL along with Befesa to build, own, operate and transfer (BOOT) 100 million litres per day (MLD) seawater desalination project located at Minjur northern suburb of Chennai in Tamil Nadu for a period of 25 years.

The transaction is expected to complete in three months, subject to the approvals of Chennai Metropolitan Water Supply and Sewerage Board (CMWSSB), lenders and other applicable authorities and satisfaction of certain agreement related conditions, IVRCL said.

As per the conditions of concessionaire agreement, IVRCL and its partner Bafesa will have to maintain a minimum 26% stake in the project.

“The agreement (with Utico) allows us to sell total stake in the project subject to approvals,” said R. Balarami Reddy, joint managing director of IVRCL over phone.

The total enterprise value of CWDL for this transaction is arrived at Rs.150 crore, the company said.

The total cost of the Chennai Desalination plant was Rs.550 crore, of which IVRCL has invested about Rs.127 crore in equity and Rs.320 crore in debt.

The first of its kind project in India aimed to tackle Chennai’s chronic water problem is based on reverse osmosis technology— a water treatment method traditionally known for removing salt from seawater and make in potable.

The project is operational since July 2010, with a 25 years concession period under a Bulk Water Purchase Agreement (BWPA) signed with CMWSSB.

CWDL recorded a turnover of Rs.185 crore during the financial year 2013-14, which is 3.71% of consolidated turnover of IVRCL for the year ended March 2014.

The networth of CWDL as on 31 March 2014 is Rs.24 crore which is 1.17% of consolidated networth of IVRCL.

If the transaction is consummated IVRCL will get Rs.110 crore in cash and will be able to reduce debt to the tune of Rs.250 crore from its books, Reddy said.

As on 30 September, IVRCL has debt of around Rs.3,800-4,000 crore. The company, which has been facing cash flow problems is trying to sell its BOOT assets to generate liquidity.

IVRCL proposal for debt recast was approved by corporate debt restructuring (CDR) cell in June. As part of debt recast, IVRCL is eligible to get a fresh loan of Rs.175 crore that can be used towards meeting working capital requirements besides getting Rs.1,400 crore bank guarantees.

“Companies like IVRCL are under pressure from lenders as part of their CDR package to sell assets to repay loans,” said Satish Kantheti, joint managing director and equity research head at Zen Securities Ltd.

The Chennai Desalination Plant wasn’t a smooth ride for IVRCL, the project which was originally scheduled to be opened in January 2009, was delayed by a year and half due to environmental clearances and Cyclone Nisha in October2008. IVRCL also had differences with its partner Bafesa.

EY acted as the advisor to IVRCL for this deal.

Shares of IVRCL rose 12.13% to close at Rs.15.25 on BSE on Thursday, while the benchmark Sensex gained 1.56% to end at 27,126.57 points.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.