Reliance Power plans IPO to raise around Rs 11K cr

MUMBAI: Reliance Power, a subsidiary of Anil Ambani group company Reliance Energy (REL), is considering an initial public offering (IPO) to raise about Rs 11,000 crore to fund the ultra mega power projects in Sasan and Rosa. Sources said the company is likely to file a draft red herring prospectus soon.

For the Sasan and Rosa projects in UP, Reliance Power needs almost Rs 21,000 crore, which covers the cost for engineering, procurement and construction (EPC) equipment purchase and technology hiring.

A Reliance Energy spokesperson declined to comment on the public issue. “It is not the company’s policy to comment on rumours and speculation,” he said.

It is widely believed that Reliance Power may offload around 15% stake, making it larger than the DLF IPO and the ICICI Bank follow-on public offer. Reliance Energy and Reliance-Anil Dhirubhai Ambani Group own 50% each in Reliance Power, said company sources.

Kotak Mahindra Capital and JM Financial are likely to be the lead managers to the proposed issue. Shares of Reliance Energy reacted to reports of the public offer. The Reliance Energy stock rose to its 52-week high of Rs 1,220 on BSE on Friday, before ending at Rs 1205.50, a rise of 7.9% compared to Thursday’s close.

“Reliance Power will participate in the forthcoming bids for the ultra mega power projects in Krishnapatnam in AP and Tilaiya in Jharkhand,” sources said. The company also plans to increase the capacity of its coal-based pit-head project in Sasan from the earlier planned 4,000 MW, they added.

As the price of power for the 4,000 mw is fixed through competitive bidding, profit from it will be relatively low. If the company puts up additional capacity, the extra power can be sold at market price, which is five times higher than Reliance Power-quoted price of Rs 1.19 per unit for Sasan.

Moreover, if Reliance Power bags other ultra mega power projects, the order backlog will swell. The 1,200 MW coal-based Rosa project will be operational by 2010.

According a Delhi-based analyst, the Anil Ambani group is inspired by the stock performance of Mukesh Ambani-controlled Reliance Petroleum. “Reliance Petroleum is also a specific project-based company like Reliance Power.

Reliance Industries has unlocked the value through the spin-off of Reliance Petroleum. Reliance Power is also likely to take the same route. It will not be surprising, if the group ropes in a foreign power player with a stake,” said the analyst.