Tata Power, India's largest private power producer, will purchase 25% of Resurgent Power for $300 million (around Rs 1,800 crore) as part of a consortium to primarily buy both coal-fired and hydro power assets in India, besides looking at power transmission companies, two people with direct knowledge of the plan said.
Resurgent Power is founded by a consortium of two sovereign funds from Middle East, an overseas pension fund from Canada and local private equity fund ICICI Ventures. Kuwait Investment Authority, or KIA, Oman State General Reserve Fund, or OSGRF, Canadian pension fund Caisse de depot placement du Quebec, or CDPQ and local private equity fund ICICI Ventures own the consortium.
The three global funds will invest $500 million and will own 65% stake, while ICICI Ventures will own the remaining 10% stake. The company, which will be registered in Singapore, will be capitalised up to $850 million and can raise up to three times debt of the equity capital. "Tata Power does not respond to marketspeculations," the company spokesperson said in a mailed response.
"As a company, we are always open to evaluating various options that could create shareholder value." KIA, OSGRF and CDPQ did not respond to questionnaire mailed on Monday. ICICI Venture spokesperson declined comment on the development. ET was the first to report on February 12, 2016, about an impending deal. The new joint venture with overseas sovereign and pension funds is part of Tata Power's plan to quickly build a sizable coal and hydro power portfolio taking advantage of a push by local lenders to cut down non-performing assets of power producers in their books by hawking these assets to cash-rich companies.
The company has made an aggressive push to build a sizable renewable energy portfolio. On June 12, it agreed to acquire renewable energy company Welspun Renewables Energy Pvt Ltd for an enterprise value of Rs 9,249 crore, the largest transaction in the renewable energy space. The acquisition created a clean energy portfolio of 2.3 gigawatts (GW) from 1.2 GW for the power major.
The consortium has also delegated the responsibilities among its partners, sources said. ICICI Ventures will identify and check the financials of the target companies, which will then be vetted by a panel represented by the consortium partners, while Tata Power will ensure supply of coal, quality of the plant and the day-to-day management of the operations of these plants.
The idea was floated in 2012 jointly by Tata Power managing director Anil Sardana and then ICICI Venture managing director Vishakha V. Mulye, who was on the Tata Power board before moving to the fund's parent ICICI Bank as executive director. She also later resigned from the Tata Power board due to conflict of interest as a lender.
Analysts say the new venture is a win-win for Tata Power and local lenders. "With availability of cheaper coal from both India's largest coal miner Coal India and from overseas companies and the government helping state electricity boards to reduce debt and issue fresh power purchase agreements with power producers, there will be lots of mergers and acquisition opportunities primarily driven by lenders," an analyst from a local brokerage said.
"After a large acquisition of Welspun's renewable energy portfolio, the challenge is to raise cash and maintain a healthy leverage ratio," he added.
News Source : Economic times