Canada's PSP Investments will acquire 49 per cent stake in Reliance Infrastructure's integrated power generation, transmission and distribution business in Mumbai and adjoining areas. This business will be carved out into a separate special purpose vehicle (SPV) in which RInfra will own the controlling 51 per cent stake. RInfra's Mumbai power business (known as Reliance Energy) had revenues of Rs 7,700 crore in FY 2014/15. The consolidated revenue of RInfra stood at Rs 17,000 crore and net profits at Rs 1,300 crore.
The PSP buy is expected to create liquidity of Rs 3,500 crore for RInfra. Using part of the cash, the company will go for an open offer to buy an additional 26 per cent stake in Pipavav Defence and Offshore Engineering Company.
In March, RInfra offered to buy 17.66 per cent stake from Pipavav Defence's promoters for Rs 819 crore and it wanted to buy the additional shares from the public to raise the stake above 25.10 per cent. The total value of the open offer would be Rs 1,263 crore.
Pipavav Defence shares rose over 5 per cent to above Rs 63 apiece and RInfra shares were down 1.4 per cent compared to nearly 1 per cent gain of the Sensex.
RInfra's Mumbai power business distributes electricity to nearly 3 million residential, industrial and commercial consumers in the suburbs of the city, covering an area of 400 sq km, and catering to a peak demand of over 1,800 MW.
RInfra also owns a power generation plant at Dahanu, which is also part of the deal. The transaction will help the company reduce its debt to Rs 5,000 crore from Rs 16,000 crore as it would transfer the debt of Rs 8000 crore to a hived off entity, in which Canadian fund would hold the stake.
The group's bet in defence is based on Prime Minister Narendra Modi's big push for privatisation and indigenisation in the sector. But the stock market is yet to be convinced of the larger opportunity in the business since much of the growth in defence would be depending on the technology, says an industry expert.
It is now evident that the group's primary focus is defence. That is why it is looking to exit from cement manufacturing and road development, and streamline its focus on defence. Earlier, the company had lost electricity customers in Mumbai to Tata Power after disputes in billing.
Through its SPVs, the company has constructed a metro rail in Mumbai, eleven road projects with total length of 1,000 km and cement plants of total capacity of 5.6 million tonnes in Madhya Pradesh, Maharashtra and Uttar Pradesh. RInfra also provides Engineering, Procurement and Construction (EPC) services for developing power and road projects. The company has recently entered into the defence sector.
The Maharashtra government has allotted 290 acres of land at Mihan near Nagpur for the development of India's first smart city for the defence sector known as Dhirubhai Ambani Aerospace Park (DAAP). The cost of the park would be Rs 6,500 crore.
RInfra has also announced the proposed acquisition of Pipavav Defence and Offshore Engineering Co Ltd (PDOC), which houses India's largest dry dock facility to build warships and other naval vessels.
In June, the Reliance Group applied to the Department of Industrial Policy and Promotion (DIPP) for licences to manufacture scientific investigation ships, parts and accessories of aircraft and spacecraft, engines, turbines and radar equipment, among other things.