NEW DELHI | MUMBAI: Naveen Jindal-promoted Jindal Steel & Power Limited ( JSPL ) is in advanced discussions with Adani Group to sell its power generating subsidiary – Jindal Power (JPL), four people familiar with the development said.The transaction, which could end up being the largest in the power sector till date, values the business around Rs 18,000-20,000 crore, inclusive of debt , the people added on condition of anonymity as the talks are still private.The move is aimed at deleveraging the consolidated balance sheet and a substantial portion of it may be used to retire debts of its parent’s steel arm. As on FY15, the Jindal group’s consolidated debt was Rs 45,500 crore and the deal, if it goes through, will help pare it by half.On standalone basis though, Jindal Power is one of the most underleveraged companies. With an installed capacity of 3,400 mw, its total long-term debt is aboutRs 5,120 crore,” said one of the persons quoted above. Profitability of both its key steel and power businesses have been impacted on the back of acute coal shortage, falling realisation and no material improvement in utilisation of recently commissioned assets.“Even after adjusting debt, the net proceeds from the deal would be upward of Rs 13,000 crore that would help JSPL bring down its debt to a manageable level to aboutRs 20,000-21,000 crore,” said the person.“JSPL as a part of its corporate policy doesn’t comment on speculative reports. We would certainly inform our stakeholders, including media, in event of any news/development relating to JSPL’s businesses,” a group spokesperson told ET. An Adani Group spokesperson also declined to comment.JPL, the first domestic private sector player to commission an independent power plant (IPP) in 2007, has a total installed capacity of 3,400 mw set up at coal pitheads.This includes a 1,000 mw plant (250mw X4) located at Raigarh district of Chhattisgarh with another plant of 2,400 mw (600 mw X4) capacity situated at Tamnar, also in the same state. JSPL also has 1,649 mw of captive power units in Chhattisgarh and Odisha. The company had earlier announced an internal restructuring transferring some of these assets into the power subsidiary but is still not clear if the divestment will include them as well. One of the sources said there has been a proposal to sell the entire portfolio of 5,049 mw in one shot but that could not be independently verified. Another source added that plans to sell JSPL’s captive units to its power arm faced resistance from the company’s lenders.The acquisition will help Adani Power that has reported an operating income of Rs 10,624 crore in last fiscal to significantly increase its installed capacity to 13,880 mw from current level of 10,480 mw. It aims to reach the installed capacity of 20,000 mw by 2020. Adani Group already has coal mine development operations in Chhattisgarh.In 2014, it also agreed to buy Avantha Power’s 600 mw unit in the state but that transaction is yet to close. Sources say, the ongoing Jindal-Adani negotiations are aimed at closing a transaction by the first quarter of next fiscal (April-June 2016).According to analysts specialising in the sector, an enterprise valuation of Rs 18,000-20,000 crore is a reflection of distress in the market, especially in the power sector and is almost a third of its last expected valuation in 2011 when it had made an unsuccessful attempt to list the power business in the local exchanges for an equity valuation of about Rs 60,000 crore. JSPL has been in talks with banks for refinancing of its projects under the Reserve Bank of India’s 5/25 scheme.The scheme allows companies a longer repayment period for term loans to projects which require elongated servicing period. The scheme was already sanctioned for its power business.“From an M&A perspective, the valuation translates to around Rs 6 cr/mw. In today’s market that is very attractive for ready assets.The buyer has to secure fuel linkage and sort out PPAs as currently only 30% of total commissioned capacity has offtake agreements in place,” said an analyst.The proposed sale is yet another example where lenders are proactively coaxing indebted business houses to unwind their leverage via asset sales. Last week, Jaiprakash Associates sold its cement asset with an annual installed capacity of 22.4 million tonnes forRs 16,500 crore.Jindal Power – one of the most profitable IPP till recently – had clocked a net profit of Rs 1,765 crore on a turnover of Rs 3,040 crore, a whopping net margin of 58% in 2011-12. But falling merchant tariff rates and deallocation of its captive coal mines dealt a body blow.For the first time in 2014-15, the company reported a net loss of Rs 171 crore on a turnover of Rs 3,228 crore.“Although power business has been able to secure some PPAs, the constraints in the power grid has affected near term supply and cash flows,” wrote analysts from Motilal Oswal after the company’s Q3 FY16 results last month. “With merchant power rates trading low on oversupply, the outlook remains subdued in short-to-medium terms… currently, the focus is on asset sweating, supply chain efficiencies, preserving capital and exiting non-core assets,” they added.