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Business News/ Industry / Energy/  IL&FS to list wind energy assets as InvIT to raise Rs2,000 crore
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IL&FS to list wind energy assets as InvIT to raise Rs2,000 crore

Infrastructure Leasing and Financial Services seeks to use the capital to fund existing expansion plans and as part of capital infusion in the company

Photo: MintPremium
Photo: Mint

Mumbai: Infrastructure Leasing and Financial Services Ltd (IL&FS), a developer and financier of public works, has initiated the process of listing its wind energy assets that fall under IL&FS Energy Development Co. Ltd (IEDCL) as an infrastructure investment trust (InvIT), said two people directly familiar with the development.

The wind energy developer is looking to raise as much as 2,000 crore through the listing, one of the two people cited above said.

A number of infrastructure firms are finalizing plans to set up InvITs as most regulatory hurdles to such investment vehicles have been cleared. Earlier this month, the capital markets regulator released final guidelines for the public listing of such trusts. The concept of pooling infrastructure investments into a trust, in which shares can be sold to investors, was first mooted in 2014 to help firms unlock capital in operational projects, which, in turn, would allow them to undertake new investments.

With rules and regulations in place, firms such as IL&FS are moving ahead with their plans.

“The firm has already hired two foreign investment banks to start the ground work for the listing. It plans to use the capital for funding its existing expansion plans and as part of capital infusion in the firm," said the second person mentioned above.

“They were out in the market last year trying to raise capital through an initial public offering, which did not fructify. But with the recent investment by Orix Corp. in the wind energy portfolio, the firm believes it will now be able to attract capital from investors," the person added.

An email sent to the company on Thursday went unanswered.

IL&FS had started its energy business in 2008 through its IEDCL unit with the objective to develop, own and operate power generation and power transmission assets in India and abroad.

On 17 March, IL&FS had entered into a pact with Japan’s Orix, which has been an investor in the firm since 1993, to expand the wind energy platform. Orix has picked up a 49% stake in the platform, under which IL&FS has 1,004 megawatts (MW) in wind energy projects, of which 775MW is operational and the balance is under construction. Orix is a significant investor in the renewable energy business in Japan which includes solar, wind, biomass, power trading and retailing. It is also one of the largest solar power generation firms with a 1 gigawatt (GW) portfolio.

Investor interest in renewable energy firms has been high because the government has put its weight behind the sector. India has a target of installing 100GW of solar capacity and 60GW of wind capacity by 2022.

Operational projects which have long-term power purchase pacts in place may lend themselves well to the investment trust structure, said an expert.

“The key requirement for any InvIT is that the underlying asset should be generating predictable cash flows. Renewable energy assets that are already operational with long-term power purchase agreements will tend to have predictable cash flows and will, therefore, make good assets for an InvIT," said Manish Agarwal, leader, infrastructure and capital projects, PricewaterhouseCoopers India Pvt. Ltd.

Infrastructure firms are keen on the product as a tool to unlock capital and we expect to see a lot of activity on this front, said Agarwal while adding that there are assets across the roads, power and other infrastructure segments which now have a stabilized cash-flow stream.

“In the next six months or so we should see some concrete action in InvITs," said Agarwal.

Apart from trying to raise capital under the wind energy arm, IL&FS has also initiated preparatory work to launch an InvIT for its road development arm IL&FS Transportation Networks India Ltd (ITNL). Some road developers such as IRB Infrastructure Developers Ltd, IL&FS Transportation Networks India Ltd, MEP Infrastructure Developers Ltd and transmission line developer Sterlite Technologies Ltd are considering InvITs as a way to unlock capital.

On 12 May, the Securities and Exchange Board of India (Sebi) released norms for public issue of units InvITs. Sebi said InvITs can offer up to 75% units to institutional investors in a public issue and the rest to other classes of investors. In the institutional investors’ quota, the issuing InvIT may allocate as much as 60% to anchor investors. “Most corporates are approaching investment banks to understand the product but it is too early to comment on what kind of response it will generate as yields don’t seem that attractive post-tax. Though discussions are happening, it is till sometime away from launch," said an investment banker who has undertaken a roadshow for a client.

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Swaraj Singh Dhanjal
" Based in Mumbai, Swaraj Singh Dhanjal is responsible for Mint’s corporate news coverage. For the past eight years he has been writing on the biggest deals in private equity, venture capital, IPO market and corporate mergers and acquisitions. An engineer and an MBA, he started his journalism career in 2014 with Mint. "
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Updated: 23 May 2016, 12:51 PM IST
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