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Greenko plans $750 million equity investment for diversification drive

LiveMint logoLiveMint 03-10-2017 Utpal Bhaskar

New Delhi: Given the uncertainties surrounding India’s clean energy space, Hyderabad-based Greenko Group is planning a $750 million equity investment for buying power transmission and distribution (T&D) assets to diversify.

The firm backed by Singapore’s sovereign wealth fund GIC Holdings Pte. and Abu Dhabi Investment Authority is betting on the acquisition route to become an integrated energy firm, said founder, president and joint managing director Mahesh Kolli in a telephone interview.

The firm is in talks to acquire several electricity transmission, distribution and hydropower projects, added Kolli.

Greenko, which acquired SunEdison’s Indian assets last year, is also evaluating an entry in the electric vehicles (EV) charging space by leveraging its proposed discom play.

The Economic Times reported on 2 October about Greenko seeking to acquire Reliance Infrastructure’s Mumbai electricity business for an enterprise value of $2.15 billion. Kolli confirmed his firm’s interest in the reported acquisition. A Reliance Infra spokesperson, in an email response, said, “We do not comment on speculations.”

Greenko currently has over 2.7 gigawatt (GW) of operating capacity with plans to achieve 3GW capacity by December. Going forward, the firm plans to reach 5GW capacity by 2019.

“In generation (projects) itself, we have put in a $1 billion worth of long term equity. That is giving us an Ebitda (earnings before interest, tax, depreciation and amortization) of close to $550 million. The long term plan is to be build an Ebitda of $1 billion,” said Kolli.

To reach the $1 billion Ebitda target, another $150 million is planned from generation assets, with around $300 million expected from the T&D space that the firm is actively evaluating. “For that (T&D) we will invest another up to $750 million of equity into that diversification track. For generation (assets), 3 gigawatts cash flow is sufficient,” said Kolli.

The strategy is to ready Greenko to tap India’s rapidly evolving decarbonised, digitised and decentralised energy economy. This comes at a time when the government seeks to reduce import of fossil fuels, boost underutilized power plants and meet its climate change commitments by providing universal access to electricity.

The firm is currently pursuing two transmission deals, added Kolli, while refusing to name them.

Experts believe that given the disruptions in the Indian power sector, integration holds the key.

“Large players have to increasingly think of integrated utility play as they look for profitable and sustainable growth opportunities,” said Manish Aggarwal, partner and head of corporate finance at consulting firm KPMG in India. “Renewables surely is a huge play but will also witness headwinds. Focus of government is increasingly going to be towards transmission and distribution which offers immense opportunity going forward,” added Aggarwal.

India’s low green energy tariffs have caused disruptions with some states looking to renege on their offtake commitments for projects awarded at comparatively higher tariffs.

Greenko has been acquiring assets in the Indian energy space. In 2016, it acquired SunEdison’s Indian assets at an enterprise value of $392 million. The deal involved an equity investment of $42 million and required Greenko to assume project-level debt of $350 million.

“If you look at our strategy, it has always been diversification.... Remember even when there was this complex scenario, I did acquire the TAQA hydro asset. I am still doing hydro. There are a couple of more hydros (projects), people are talking to us. Diversification is a key theme to whatever we do,” said Kolli.

Greenko is also evaluating the EV charging business even as there is rapidly emerging competition in the space. Utilities such as state-run NTPC is eyeing it, given the lucrative market potential of around 90 billion units of power.

“Mobility is also converging into power and that’s why we are looking at all these things,” said Kolli, adding that the firm was not looking at the EV charging space as a standalone business but would leverage its discom entry for the same.

India has drawn up an ambitious plan for a mass shift to electric vehicles by 2030 with state-owned Energy Efficiency Services Ltd going ahead with the first stage of procuring 10,000 electric cars.

“Therefore, I see more large players (including pure play renewables, transmission companies) increasingly thinking of more of a ‘integrated utility’ play, which will drive consolidation and also provide exit to many stand-alone platforms,” said KPMG’s Aggarwal.

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