The renewable energy firm is open to diluting minority stake, wants the money to expand and also bid for renewable energy assets, say sources.
Avaada Energy, one of India’s largest solar energy producers promoted by serial entrepreneur Vineet Mittal, is looking to raise $200 million-$250 million to expand and also bid for renewable energy assets, sources have told Moneycontrol.
The Mumbai-headquartered renewable energy firm was also looking for growth capital to execute its existing portfolio and was open to diluting minority stake, a source said.
“Investment bank BofA Securities has been given the mandate for the proposed transaction,” the source said.
Both Avaada Energy and BofA Securities declined to comment on emails seeking their response.
Another source said that Avaada Energy, which is also backed by the Asian Development Bank and the German development finance institution DEG, may follow the structured route (a combination of debt and equity ) as has been the case in the past with the existing investors.
“Market conditions are tough due to the outbreak of COVID-19 and deal timelines are bound to get extended” the source added, referring to the respiratory disease caused by the coronavirus.
The transaction was likely to see participation from fresh investors and in recent weeks the plan had been to widen the net of potential suitors and focus on long- term investors with “patient capital’’ like sovereign wealth funds and pension funds, a third source said.
“But the crash in oil prices and potential of rising liabilities in home countries due to COVID-19 deaths may impact the investment decisions of such investors,” the source said.
All the persons Moneycontrol spoke to did not wish to be named.
Raising funds in the renewable energy sector depends mainly on the performance of the target company’s underlying assets.
Experts say that due to the nature of long-term contracts ( running into 25 years) and fair visibility of revenues in the sector, investors may still play ball but will have to contend with risks like longer working capital cycles and uncertainty over state power purchase agreements (PPAs).
Following the 21-day nationwide lockdown to check the spread of coronavirus and a fall in demand, some states in early April invoked the force majeure clause in their PPAs for renewable projects to cease power supply and payment.
A ‘force majeure’ is announced in an event of unforeseeable circumstances that prevent parties from fulfilling a contract.
But days later, Punjab relaxed conditions and allowed a solar developer to supply power. In November 2019, Moneycontrol had reported that Canadian pension fund CPPIB and Brookfield were eyeing investments in Goldman Sachs promoted clean-energy firm ReNew Power.
“Within the broader energy segment, renewables has been a segment of focus for private equity funds and sovereign wealth funds. The idea is to concentrate on greener energy sources and avoid fossil-fuel business and some of these funds have this as a mandate,” said Sanjeev Krishan, Partner and Leader – Deals, PwC India.
In November 2019, Avaada Energy announced a Rs 100 crore fund infusion from the French development finance institution Proparco. In April that year, it got a Rs 1,000-crore investment boost from ADB, DEG, Dutch finance development company FMO and the promoter group.
Avaada Energy has delivered nearly 1 gigawatt commissioned solar capacities and has built some of the largest solar and wind projects across 10 states in India.
Its 151-MW (DC) Neemuch solar power plant in Madhya Pradesh was one of the world’s largest at the time of its commissioning in 2013. The 302-MW Tamil Nadu project was India’s largest when commissioned.
The firm has a 5GW project pipeline spanning emerging African & Asian countries, according to its website. In March 2020, Avaada Energy signed a 650 MW strategic agreement with Sungrow, a leading global inverter solution supplier for the renewable segment.
In June 2017, Welspun Energy sold its green energy portfolio to Tata Power for around $1.4 billion in the largest solar deal in the country. Mittal, who was the managing director and founder of Welspun Energy, exited the venture through this deal.
India is the leading proponents of solar energy and the government has set a target of 175 GW of renewable energy by 2022. As per market forecasts, the penetration of solar power in India could be 5.7 % (54GW) in 2020 and 12.5% (166GW) by 2025.