IL&FS puts wind energy unit on the block
The process to sell IL&FS Wind Energy was initiated after a plan to merge with Orient Green Power’s wind power business fell through
New Delhi: Crisis-hit Infrastructure Leasing and Financial Services Ltd (IL&FS) has put up the assets of IL&FS Wind Energy for sale and mandated HSBC to find a buyer, two people aware of the development said. The 775 megawatt (MW) wind energy project portfolio, with an estimated value of around ₹ 4,500 crore, has been on the block for about a month. Last week, the government dissolved the board of IL&FS and appointed a seven-member board, led by Uday Kotak, managing director and chief executive of Kotak Mahindra Bank.
The process to sell one of India’s largest wind energy platforms was initiated after a plan to merge Orient Green Power Co. Ltd’s (OGPL) wind power business with IL&FS Wind Energy fell through. This comes against the backdrop of uncertainty over debt-laden IL&FS’s capital-raising, restructuring and asset monetization plans.
“The assets have been up for sale for more than a month now. Even as the government has stepped in, they will have to sell assets to take care of the debt that has been raised,” one of the two people cited earlier said, requesting anonymity.
At the consolidated level, the IL&FS group has ₹91,091 crore of debt.
The second person, who also didn’t want to be identified, confirmed the development, adding, “IL&FS Wind Energy is back on the market for sale.” The person added that its sale had been contemplated post the failed merger with OGPL.
It is possible, though, that all old deals may be put on hold and may even be reviewed. With the Serious Fraud Investigation Office involved, valuations might change and there is the possibility of a probe into past deals.
Mint reported on 8 May 2017 that the merger between IL&FS Wind Energy and OGPL might come unstuck because of a new provision that mandates payment of long-term capital gains tax on share sales where securities transaction tax (STT) has not been paid.
While the merger announcement for 1.2 gigawatts (GW) of operating assets was made in January 2017, tax implications arose due to changes pertaining to STT announced in the budget on 1 February.
While queries emailed to an IL&FS spokesperson late on Wednesday evening remained unanswered, an HSBC spokesperson also declined to comment.
India’s wind power tariffs plummeted to ₹ 2.43 per kilowatt-hour (kWh) at an auction conducted by state-run Gujarat Urja Vikas Nigam Ltd last December.
Also, the country’s wind energy sector has transitioned from a feed-in tariff regime, which ensures a fixed price for wind power producers, to tariff-based competitive auctions. In such a scenario, obtaining finance at the lowest cost has become key.
“Orient Green Power Co. Ltd. entered into an exclusivity and confidentiality agreement with IL&FS Wind Energy in Q1FY18 to evaluate a merger of both entities in order to benefit from synergies and scale,” an external spokesperson for OGPL said in an emailed response. “That exclusivity and confidentiality agreement expired on 31 August 2017 and the two companies did not extend that agreement as they were unable to see value in the proposed merger.”
“Following the conclusion of the exclusivity and confidentiality agreement on 31 August 2017, the OGPL management team is unable to comment on any steps that may have been subsequently taken by IL&FS Wind Energy to create value for their respective stakeholders,” the spokesperson added.
The asset monetization plan has been in the works since the beginning of August, with IL&FS receiving concrete offers for several of its assets, including road projects housed under group subsidiary IL&FS Transportation Networks Ltd, land parcels held under its various companies and the company’s wastewater treatment facility at Tirupur.
Mint reported on 3 October about several potential suitors, who had been in discussions with the previous board, seeking clarity after the board was superseded.
Over the past few years, IL&FS has divested specific assets and full business verticals to shore up liquidity. In July, IL&FS sold IL&FS Securities Services Ltd to IndusInd Bank Ltd. In March, IL&FS Energy Development Co. Ltd divested 49% stake in its renewable energy business to Japan’s Orix Corp. for ₹ 132 crore. IL&FS Engineering and Construction Co. Ltd is also in discussions with the Saudi Binladin Group to raise capital.
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