Bhilwara Energy pre-IPO placement likely in Feb '08

Riju Jhunjhunwala, Rajasthan Spinning & Weaving Mills has informed CNBC-TV18 that Bhilwara Energy will go for a pre-IPO placement & IPO in the next 4-5 months. The pre-IPO placement likely in February 2008, Jhunjhunwala said. The company is looking to raise USD 350-400 million via pre-IPO and IPO, he added. Bhilwara Energy will have 1800-2000 MW hydro capacity in the next 3-4 years, he said.



Excerpts from CNBC-TV18’s exclusive interview with Riju Jhunjhunwala:



Q: Can you start off by telling us a little bit about the plans on Bhilwara Energy and what happens to RSWM stake?


A: Bhilwara Energy is basically the power company of the group. It focuses only on hydropower. We have one project that is operational; it is a 100 megawatts project. Another 200 megawatts is in final stages of completion and will start next year.



Over and above this, we have more than 1,600 megawatts in the pipeline, which we will start construction over a period of now to the next two-three years. So, the next five years Bhilwara Energy, we really see it as a 1,800 to 2,000 megawatts hydro-only company.



Over there, the plans of fund requirements are huge. So, in the next 3-6 months, we are really planning something over there on how to get the first round of funding for Bhilwara Energy. RSWM holds a 26% stake in that, the balance is held by other group companies - HEG and the other promoter firms.



So, they should really see a value unlocking as and when that happens.



Q: You must have done some internal studies on how you value Bhilwara Energy as a company. Does it look like the most likely capital-raising road or the first step could be an IPO?


A: Most definitely; we are very keen to look at the possibility of an IPO. In fact we are already talking to some people now. We will probably be doing this in two stages, starting off with the pre-IPO stage and then finishing it off with an IPO - all within the next 3-6 months. The total fund requirement for our initial 18 months would be around USD 350-400 million, which we plan to split between the pre-IPO and the IPO of 30:70 kind of a ratio.



Valuations are anything, whatever deserves in the power sector today. We are trying to look at the pricing and all of that as of now.



Q: But still you would have some initial thoughts, leading up to the pre-IPO placement?


A: Three months back, we completed a process of private equity to New York Life and Wachovia Bank. That was done at an equity valuation of around Rs 1,400 crore for this company. At that time this company was more or less a 1,200 megawatt company. A lot has happened for us in the last six months, including the sector and our own projects that we have bagged. We expect it to be in multiples of that - without going into the exact number, definitely, significantly higher than that valuation.



Q: How much stake dilution does this involve for RSWM and for HEG?


A: The total promoter holding in Bhilwara Energy is around 92% today and anywhere between 15-20% of a stake dilution in phase one would be a comfortable number there. So, proportionately the stakes of these companies would also go down.



Post-IPO, we expect to hold around 20-21% of this company in RSWM.



Q: You would make the pre-IPO placement to the same investors, New York Life or Wachovia Bank or have identified some other investors?


A: That process will start now - the process of selecting the pre-IPO. Obviously, they have the right of first refusal as per the agreements. But then we are open to looking at other investors as well.



Q: What is happening with the core business; we understand you want to expand into the retail side as well?


A: Retail is not something that we are looking at in RSWM. It is more of a yarn play over there. Within yarn, we are amongst the top three players in India and we have significantly ramped up capacity over there, the effect of which will start coming in now.



All our expansions are now complete, including our 46 megawatt thermal power plant which is in RSWM as a captive generation. That has started commercial production just about last month. Come January, when the plant stabilises, you will see tremendous benefits on the cost reduction side coming on to RSWM itself and add it with the expanded capacity.



So, next financial year, we expect RSWM’s core business itself to give us very good jumps compared to the last one or two years. With the market scenario slightly improving in the textile side, we have gone through a bad patch over the last 6-7 months, but things seem to be changing now.



With that happening, I am sure RSWM core business itself for us is looking quite interesting as well.



Q: By when do you think this whole process will be completed: the pre-IPO and the IPO in 2008?


A: Pre-IPO, we are really targeting the month of February - completing the pre-IPO process. And IPO, I am not really in a position to say right now - whatever time it takes for the approval from Sebi. But we are working it at our end quite aggressively. As soon as possible, we would like to do that as well.