The Essel Group, which needs to sell a host of assets to stave off loan defaults, is in talks with the Adani group to sell its remaining solar energy portfolio, said two people close to the development.
Essel is rushing to complete its unfinished solar power projects of 480 megawatts (MW) to sell them to Adani Green Energy Ltd, the group’s renewable energy arm, the people said, requesting anonymity.
In August, Essel Infraprojects Ltd, wholly owned by Subhash Chandra’s debt-heavy Essel group, sold its operating portfolio of 205MW to Adani Green Energy at an enterprise value of ₹1,300 crore. Prior to the sale, the Essel group had a consolidated solar power portfolio of 685MW, which it had won under the National Solar Mission and state government auctions. The average power purchase agreement for the assets is ₹5.50 per kWh, fairly high by current standards of below ₹3 per kWh.
Now, the remaining 480MW in its portfolio is on the block as well, despite most of it still being under construction.
“Of the ₹1,300 crore that Essel earned in the first deal, the equity portion was roughly ₹200 crore," said the first person cited above. “Essel is investing this ₹200 crore to make its remaining portfolio operational. The Adani group has tacitly agreed to buy the bulk of the remaining portfolio once the plants start generating power."
“Of the 480 MW, about half is 90% complete while the remaining is 70% complete," the same person said. “The solar portfolio sale will take two more tranches to complete" and their valuation would be in the same range as the first one, at about ₹6 crore per MW, the person added.
A spokesperson for the Essel Group said it is in “steady dialogue with multiple prospective partners for the divestment of its non-media assets." The spokesperson however, declined, to disclose additional details, citing confidentiality pacts. A spokesperson for the Adani group did not respond to emailed queries.
Last October, the Essel group had a similar pact with Sekura Energy Ltd, backed by Edelweiss Infrastructure Yield Plus (EIYP) fund. Sekura agreed to buy two operating and two under-construction power transmission assets from Essel Infraprojects for roughly $800 million ( ₹6,000 crore). While the operating projects were sold this year, the second tranche of the deal for the under-construction projects is still awaiting completion.
Essel Infra has also placed several of its road assets on the block, but has yet to finalize a deal. On 26 July, Mint reported that Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ) pulled out of a deal to buy three of Essel’s road projects. Essel later entered into talks with National Investment and Infrastructure Fund and Roadis for a similar transaction.
Acquisitions in the solar energy sector have slowed over the last two years because of continued delayed payments by state utilities, affecting the margins of several renewable energy companies, and Andhra Pradesh forcing some companies to renegotiate their power purchase agreements (PPAs) to lower tariffs. A recent report by India Ratings downgraded its outlook to “stable" from “positive" for the solar sector. It said there were 25% more downgrades than upgrades among renewable projects in its ratings portfolio from January-August 2019. The Essel group is struggling to pay back about ₹13,000 crore in debt that the promoters owe to a clutch of creditors, while Essel Infra owes another ₹10,000 crore. The promoter group, led by Subhash Chandra, have agreed with certain lenders to defer the payment date on certain non-convertible debentures to March 2020, from 30 September.