With government clearance mandatory for all foreign direct investment (FDI) from countries with which it shares land borders, developers are being extra cautious with due diligence. They believe the chances of securing approval for Chinese investments are slim. Across the border, too, the Chinese Communist Party recently unveiled a plan for better control over private businesses.
A host of clean energy deals are in the play in India.
“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 that is in the process of raising around $250 million through a stake sale.
Deal activity in India’s clean energy space has picked up after getting impacted by the coronavirus pandemic.
Potential deals include Acme Solar looking to sell 4.84 GW of solar projects; Petroliam Nasional Bhd (Petronas) looking to acquire around 10% stake in Tata Power Renewable Energy Limited, 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’s 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 track of the private contracts won by Chinese companies. In October last year, the Union home ministry 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.
“One has to be realistic about such things," said the promoter of a large renewable energy firm that had China’s state-owned CNIC Corp. as one of the suitors in a stake sale plan.
India is home to the world’s largest clean energy programme and expects to have 175 GW of clean energy capacity by 2022 as part of its commitments to the UN Framework Convention on Climate Change adopted by 195 countries in Paris in 2015.
India has restricted bidders from countries with which it shares a land border from participating in government tenders without approval from competent authorities on the grounds of defence and national security.
It has also imposed tariff and non-tariff barriers and barred hundreds of Chinese apps.
“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 the green energy firm cited above who did not want to be named.
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