IDFC Alternatives in talks to buy Welspun Renewables assets for Rs10,000 crore

Mumbai: IDFC Alternatives Ltd, the asset management arm of infrastructure-focused lender IDFC Ltd, is in advanced talks with Welspun Renewables Energy Pvt. Ltd to buy assets with 700 megawatts (MW) of generating capacity, said two people familiar with the negotiations.

IDFC Alternatives is carrying out due diligence of Welspun Renewables’ assets, said one of the two people cited above, requesting anonymity.

The value of the transaction may exceed ₹ 10,000 crore, said the second person. He too requested anonymity.

Negotiations, including on the value of the deal, are still on and may take about two months to conclude, according to the people cited above.

A spokesman for IDFC Alternatives declined to comment.

Welspun Renewables’ vice- chairman Vineet Mittal did not respond to queries over email and phone.

Renewable energy companies, including Welspun Renewables, are trying to sell some of their operational projects to free up capital for new investments even as long-term financial investors, such as IDFC Alternatives, are seeking to buy operating renewable energy assets since there is little execution risk attached.

Given the high returns to investors, deals in the renewable energy sector are bound to increase, said Anubhav Gupta, analyst with Maybank Kim Eng Securities. “Project IRRs (internal rate of return) in wind are attractive at about 20%, without government incentives, while solar energy projects offer 15% IRRs, which are still attractive,” said Gupta.

The Indian government offers wind energy producers two key incentives: tax benefits and generation-based incentives.

The total installed capacity of renewable energy in the country stands at 30 gigawatts (30,000 MW), of which wind energy projects alone make up for 22GW, solar 5GW and the remaining from smaller sources, such as biomass, said Gupta.

India has a target of installing 100GW of solar power capacity and 60GW of wind power capacity by 2022.

As part of this plan, “the government is working on the RGO (Renewable Generation Obligation), and from April 2016, any company setting up a conventional power plant will also have to set up 10% of that towards renewable energy,” Gupta said. “This will add more capacity in the market, and M&A (mergers & acquisitions) will also increase significantly because of this.”

Welspun Renewables, a part of the $3 billion Welspun Group, is one of the largest renewable energy firms in India, operating 700MW of wind and solar energy projects across eight states.

In October 2015, Welspun Renewables received $617 million in funding.

The investment was a combination of debt and equity infusion by the promoters, existing and new investors.

The existing investors of Welspun Renewables include General Electric Co.’s GE Energy Financial Services and the Asian Development Bank.

In a statement in October, Mittal had said Welspun plans to reach 1GW in operational capacity by the end of this fiscal. Over the next few years, the firm is aiming at 5GW in combined capacity between wind and solar projects.

“Vineet is very value-conscious of his business. He will likely sell his operational assets in a chunk, rather than selling them as individual assets,” said the second of the two people cited above.

IDFC Alternatives is looking to create a platform of renewable energy assets, as several international investors, including pension funds, make a beeline for this promising sector. A private equity fund of the firm had in February 2015 sold a 60% stake in renewable energy producer Green Infra Ltd to Sembcorp Industries Ltd for $227 million (about ₹ 1,600 crore).

Across its infrastructure funds, IDFC Alternatives has assets under management aggregating $1.8 billion.

Since 2008, the funds have invested in more than 20 infrastructure projects in India.