Financial investors joining hands with utilities to acquire power projects

With resolving distressed assets getting government focus and divestment plans taking off, existing investors’ expectations might lower and opportunities emerge, say analysts


While several funds have announced their intention to invest, not many deals have happened yet. Photo: Indranil Bhoumik/Mint
While several funds have announced their intention to invest, not many deals have happened yet. Photo: Indranil Bhoumik/Mint

Ahmedabad/Mumbai: Attracted by India’s stressed infrastructure assets play, financial investors are joining hands with utilities to acquire power projects.

Macquarie Group Ltd is the latest among financial investors to seek such a partnership. It is exploring a partnership with Chennai-based OPG Power Ventures to acquire power projects.

US-based private equity firm Latitude Capital is also scouting for investments in stressed power projects. Stressed assets accounted for around 12% of the total loans in the Indian banking system.

While several funds have announced their intention to invest, not many deals have happened yet.

Earlier this month, Infrastructure Leasing and Financial Services Ltd said it has partnered with global private equity firm Lone Star to jointly invest $550 million in stressed infrastructure projects in India for asset purchases of up to $2.5 billion. Tata Power Co. Ltd last year partnered with ICICI Venture Funds Management Co. Ltd to invest as much as $850 million in power projects. The platform has commitments from Canada’s Caisse de dépôt et placement du Québec (CDPQ), Kuwait Investment Authority and Oman’s State General Reserve Fund.

Macquarie and Latitude Capital are actively scouting for assets, said a person requesting anonymity.

With 750MW of thermal power assets in operation, OPG Power Ventures, which is listed on the London Stock Exchange’s Alternative Investment Market, is also planning an Indian listing which could see the company raise at least Rs1,000 crore.

According to information available on its website; “Latitude Capital is a private equity firm focused on power and power-related projects in select emerging markets, with a specific focus on Africa and India.”

This comes in the backdrop of non-performing assets in the banking system exceeding Rs4 trillion.

“Macquarie and OPG Power Ventures has been exploring this arrangement for some time now,” said another person who also didn’t want to be named.

AES India, an arm of AES Corp., had placed a joint bid with Macquarie Group for Rajasthan’s 1,000MW Chhabra project. The other bidders included the Tata Power Co. Ltd-ICICI Venture Funds Management Co. Ltd platform.

The Rajasthan government agreed to transfer the plant to state-run NTPC Ltd in an asset-for-equity deal.

Experts say that the time is ripe for such funds.

“Entry of funds dealing with special situations and distressed assets is timely. With resolving distressed assets getting government focus and divestment plans taking off, valuation expectation of existing investors might lower and opportunities emerge,” said Sambitosh Mohapatra, partner, energy, PwC India.

The infrastructure sector raised about $3.78 billion in 2016 across 36 transactions, including mergers and acquisitions, private equity investment and two initial public offerings, analysis of monthly data from investment bank Equirus Capital Pvt. Ltd showed. This compares with $2.9 billion raised in 2014 and about $3.7 billion raised in 2015.

While a Macquarie Group spokesperson declined to comment, an external spokesperson for OPG Power Ventures in an email response said, “The company cannot comment specifically. OPG is approached all the time about proposed transactions and has regular discussions with finance providers of all types - with the aim of pursuing the business strategy that has been spelled out to its shareholders.”

Queries emailed to Latitude Capital on late Wednesday evening remained unanswered.

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