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Valuation of A Captive Power Plant

By June 21, 2022July 12th, 2022Case Studies2 min read
Valuation of A Captive Power plan

How our sniper-precision valuation process helped revive a dead/unsellable power plant

BACKGROUND

The plant is a private limited business entity comprising multiple units fueled by steel plant off-gasses & coal totaling nearly 500 MW. The plant is cocooned within a steel plant & is dependent on the steel plant for certain facilities like Raw material handling, Water resources, administration, outside connectivity, etc.

CHALLENGES/ROADBLOCKS FOR VALUATION

The plant is a separate business entity undergoing CIRP.
The plant is umbilically tied to the steel plant & is dependent on it for its Raw material, power evacuation as well as waste disposal.
The steel plant is also undergoing CIRP through a separate order and process.

THE BURNING PROBLEM

As both companies were under insolvency, any bidder acquiring the steel plant is unlikely to share the common facilities, making the power plant a dead asset.

Any bidder who takes over the Power plant may have to invest substantial Capex to make the power plant operate independently. Moreover, he/she has to devote considerable time to put the plant into operation.

At the point of valuation, there was not much interest in IPPs and not many PPAs were being executed.

OUR APPROACH

Since the power plant would be difficult to sell on its own, a valuation approach had to be adopted to arrive at valuations that would be useful to attract buyers, or at a fair price at which it could be sold to the entity that would purchase the steel plant.

THE SOLUTION WE OFFERED

    • Valuation of the power plant under the assumption that the power plant continues to operate & feed the steel plant.
    • An option that the plant operates as per the existing arrangement (but under a new buyer)
    • We also worked out another value in the scenario of removal and relocation of the power plant assets to another location.

This strategic approach facilitated lenders to take a decision to dispose of the Power plant and maximize debt recovery.

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