Sterlite Power Transmission Ltd (SPTL), which develops power transmission infrastructure in India and abroad, is scouting for an equity investor to raise up to ₹3,000 crore to invest in new projects, said four people aware of the development.
“While no names have been finalized, the company has approached several bulge bracket investors which includes long-term yield focussed funds," said the first person cited above.
The company is part of Sterlite Group, which has interests in power transmission assets, equipment and engineering procurement construction. In India, it has manufacturing facilities in Silvassa, Dadra and Nagar Haveli.
Sterlite Power has developed a portfolio of power transmission infrastructure of more than 12,816 circuit km so far and operates primarily in India and Brazil. The company is run by Pratik Agarwal, nephew of Vedanta Group founder Anil Agarwal. Sterlite Power has successfully listed its operating assets under IndiGrid, a publicly traded power infrastructure investment trust (InvIT).
In May, Sterlite roped in global private equity firm KKR as a co-sponsor in IndiGrid, raising around ₹2,560 crore, which included an infusion of ₹1,084 crore from KKR.
“Sterlite group began looking for investors for STPL about the same time as when they looked to bring on investors into its InvIT," the first person cited above said. “In addition, Sterlite is also looking for investors in its Brazilian assets."
Of its portfolio of 22 projects, the firm has 10 in Brazil in various phases of construction, the company said on its website. Its investment commitment in the Latin American country is over $2 billion.
“Alternatively, Sterlite might look at selling its concessions in that country. In Brazil, you can sell assets before completion if you have all the approvals in place. This is also an option, instead of looking for long-term funding. If they are able to liquidate the assets, they won’t require the investment," the second person said.
“An equity infusion will be crucial to the company’s long term growth prospects as access to debt capital remains very difficult in the current climate. Thus to take on very large greenfield transmission projects, Sterlite will need more capital," this person said.
Last week, Sterlite Power won a bid for a green energy corridor, which are alternative transmission corridors in states such as Rajasthan, Gujarat, Maharashtra and Karnataka with the maximum installed renewable energy capacity.
In response to an emailed query, a Sterlite Power spokesperson said: “Given the strong growth in transmission capex expected in the next five years, Sterlite Power is always open to receiving growth capital from reputed institutions. Having said this, as per our policy, we do not confirm nor deny that we have any live fund-raising processes in either country."
Sterlite Power is dealing with weak liquidity, reflected in a long debtor collection period and cash flow from operations turning negative, India Ratings said in April.
In 2014, Standard Chartered PE had invested ₹500 crore in Sterlite Power for a 28.4% stake. In January 2018, Sterlite bought out their stake for ₹1,010 crore, funded by cash generated from operating projects.
“Transmission assets are relatively low risk due to steady cash flows and payment security mechanism. It is being considered as a better asset class within the power sector now. However returns are not very high," said Subahoo Chordia, head – Edelweiss Infrastructure Yield Plus Fund. “We’re going to see a number of new greenfield projects come up and private sector participation will be the key to achieve the target. However, greenfield projects in transmission are high on risk due to land acquisition, sometime remote locations and right of way. Global investor appetite to put in money in under-construction projects has been very limited. However, there is a large capital requirement to build these assets, with most of developers facing liquidity/capital issues," he added.