Tata Power-CDPQ platform in talks to buy DB Power assets

An India-focused power platform set up by Tata Power, Caisse de dépôt et placement du Québec (CDPQ) and ICICI Venture, among others, is in talks to buy the assets of Diligent Power Ltd, the power arm of print media company DB Corp. Ltd, two people aware of the development said.

Diligent Power has two thermal power plants with a combined capacity of 2,520 megawatts (MW)—one 1,200MW plant in Chhattisgarh and another 1,320MW plant in Madhya Pradesh.

Although the $850 million platform was formed last year between Tata Power, ICICI Venture Funds, CDPQ Canada, Kuwait Investment Authority (KIA) and State General Reserve Fund (SGRF) of the Sultanate of Oman, no deal has been signed so far.

“Though no conclusion was arrived at on valuation, the assets can fetch a price of Rs.5-7.5 crore/MW,” one of the persons cited above said, on condition of anonymity.

Spokespersons for DB Power, ICICI Venture, CDPQ and Tata Power declined to comment, while emails sent to SGRF and KIA did not elicit any response.

If the deal materializes, it would provide an exit to existing private equity investors, which include JPMorgan Asset Management, Warburg Pincus LLC and IDFC Alternatives, the private equity (PE) arm of IDFC Group.

The platform targets acquisition of controlling stakes in power-generating and transmission companies in India.

It has an initial corpus of $850 million, which will be increased going forward, depending on market opportunities.

Tata Power, which has been expanding its footprint through inorganic growth, plans more buyouts through the newly formed platform, the second person mentioned above said, also on condition of anonymity.

“A platform brings together the individual strengths of its sponsors, such as long-term finance and operation expertise, at a reduced cost and shared risk. This is more appropriate for energy and infrastructure assets that are capital-intensive and require specific skills to succeed in a regulated market,” said Kameswara Rao, leader for energy, utilities and mining at advisory group PricewaterhouseCoopers India.

Several well-known global pension funds and sovereign funds are betting big on core sectors—power, infrastructure and logistics in India—with long-term investment plans.

CDPQ, the second largest pension fund in Canada with $210 billion (C$270.7 billion) worth of assets under management as on 31 December 2016, has been looking to acquire several power assets—both conventional and renewable—in India.

“Traditionally operational energy assets offer long-term stable cash flows which have interested pension funds. In addition, with power markets in many countries, including India, undergoing major change, acquirers have an opportunity to increase returns, too. So, there is a commercial upside with a regulatory safety net,” added Rao.

Global PE funds, which eye opportunities in the distressed assets space, are also keen on investments in the Indian power sector through local partners.

Private equity fund Bain Capital Credit’s distressed asset investment platform, joining hands with Piramal Enterprises Ltd, is in talks for KSK Energy Ventures Ltd’s partially commissioned 3,600MW power plant in Chhattisgarh, Mint reported in May.

Global private equity firm Lone Star had announced plans in February to invest $550 million in stressed infrastructure projects in India for asset purchases of up to $2.5 billion by partnering with Infrastructure Leasing and Financial Services Ltd.

According to credit rating agency Crisil, India’s power generation capacity has grown at a compounded average growth rate (CAGR) of 10% since 2009.

Of this, the private sector contributed the most—close to 60% of the coal-based capacity—and invested Rs3.2 trillion.

Despite the growth in capacity, the demand for power from distribution utilities (power discoms) has grown barely at 0.4% during this period.

At least 15% of capacities added by private firms are without long-term power purchase agreements, affecting their ability to service debt, added the report.