Indian green energy firms tasking deal advisors to call out China connection early

Even as they eagerly court investors, Indian green energy promoters now have a new task cut out for their deal advisors, to ensure no direct or indirect China connection in relation to these inbound funds, according to several developers currently in the process of raising funds.

Given the long duration involved in closing such deals, promoters told Mint that they are trying to avoid finding out about any such encumbrances later, as it may potentially setback the fund-raising exercise by a considerable time period.

With the Indian government’ clearance mandatory for all foreign direct investment (FDI) inflows from countries with which it shares land borders, developers are extra cautious in their due diligence as they believe that the chances of securing approval for Chinese investments are at the best slim. Also, the Chinese Communist Party (CCP) recently unveiled a plan of exercising better control over private businesses.

This assumes significance given that a host of clean energy deals are in the play as reported by Mint.

“While an investor does carry out due diligence before investing, given the current situation between the two countries it is also incumbent upon us as promoters to find out whether or not there is a Chinese connection regarding the origin of funds. There is a growing premium on it at the start of the sale process as one doesn’t want to waste time later,” said the promoter of a New Delhi based clean energy firm cited above, that is in the process of raising around $250 million by selling stake.

The deal activity in India’ clean energy space has picked up pace after getting impacted due to the coronavirus pandemic that originated in Wuhan. These potential deals include Acme Solar looking to sell 4.84 gigawatt (GW) of solar projects; Petroliam Nasional Bhd or Petronas looking to acquire around 10% stake in Tata Power Renewable Energy Ltd, in addition to investing in Tata Power’ renewable energy InvIT and Avaada Energy mandating Bank of America (BofA) for selling stake.

Also, O2 Power and Ayana Renewable Power have emerged as the front-runners to acquire Azure Power’ 305 MW solar assets and Canada Pension Plan Investment Board, Actis Llp and Brookfield Asset Management Inc. are looking to buy Japan’s SoftBank Group Corp’s stake in SB Energy Holding.

India also intends to keep a track of the private contracts won by Chinese companies. In October last year, the Union home ministry had raised concerns about potentially sensitive investments in critical sectors from ‘certain countries’, given the blurred ownership lines between state-owned and privately held companies in China as reported by Mint earlier.

“One has to be realistic about such things,” said the promoter of a large renewable energy firm cited above, that had Chinese state owned CNIC Corp. as one of the suitors in its stake sale plan.

India is home to the world’s largest clean energy programme and aims to have 175 gigawatts (GW) of clean energy capacity by 2022 as part of its climate change commitments. As part of its commitments to the United Nations Framework Convention on Climate Change adopted by 195 countries in Paris in 2015 to reduce its carbon footprint, 38.5% of India’ energy capacity is from non-fossil sources. This is expected to go up to 60% by 2030.

India has restricted bidders from countries with which it shares land border from participating in tenders for government procurement without approval from competent authorities on the ground of defence and national security. It has also imposed tariff and non-tariff barriers and barred hundreds of Chinese apps, including Bluehole’s PUBG, Bytedance’s TikTok, and Alibaba’s UC Browser.

Tensions run high at the Line of Actual Control (LAC), after a violent clash between Indian and Chinese soldiers in Galwan on 15 June that resulted in the death of 20 Indian and an unknown number of Chinese soldiers. The issue remains unresolved.

“There is a growing focus to look out for any China connection with an inbound deal, no matter how remote. One can’t take any chances,” said the chief executive officer of green energy firm cited above who also did not want to be named.