MUMBAI: India’s leading renewables company Greenko is in talks with Anil Ambani-led Reliance Infrastructure to acquire its Mumbai electricity business for an enterprise value of Rs 10,000-13,000 crore ($1.75-2 billion), people aware of the discussions said.
The Mumbai business caters to 3 million customers, making it the country’s largest private sector integrated power utility, entailing 1800 mw of distribution along with generation facilities, besides over 1,000 km of underground network. The distribution franchise is nine decades old with the licence valid till August 2036.
In November 2015, R-Infra entered into a non-binding pact to sell 49% stake in the business to Public Sector Pension Investment Board (PSP Investments) of Canada. Those exclusive negotiations lapsed, following which the company engaged with other potential suitors, said sources in the know.
Hong Kong-headquartered CLP has also held discussions with Reliance, said a company official on condition of anonymity, but Greenko is believed to be the front-runner. However, no binding agreements have been signed yet, said the sources mentioned above.
Spokespersons for R-Infra and Greenko refused comment on what they termed as speculation. “India is a primary growth market for CLP Group and the company has built its portfolio steadily for the last 15 years. In line with its growth strategy, the company routinely evaluates different opportunities. The matter in question is speculative and as a policy, we don’t respond to market speculation,” a CLP spokesperson told ET.
In FY17, R-Infra’s electrical division (Mumbai and Delhi together) clocked Rs 4,165 crore EBITDA (earnings before interest, tax, depreciation and amortisation) on the back of Rs 22,556 crore revenues. The Mumbai division accounted for around Rs 9,750 crore revenues and Rs 2,000-2,500 crore EBITDA, sources said. The company does not disclose city-wise breakup.
The Mumbai circle licence, along with the generation, transmission and distribution assets, will be carved out and transferred to a subsidiary and then sold, explained the official mentioned above.
NEW KIDS ON THE BLOCK
Within 10 years, Greenko has become India’s largest renewable power producer with 2.5 gigawatts (gw) of operational portfolio of wind, solar and hydropower projects. By September 2017 end, the company plans to raise capacity to 3 gw.
The operating portfolio is believed to have generated around $450 million EBITDA in FY17. This arguably places the company among the top 5 private sector owners and operators of power assets across all verticals (coal, renewable and hydro).
The privately held company that was previously listed on London’s AIM exchange, counts Singapore’s GIC and Abu Dhabi Investment Authority (ADIA) as key shareholders. Greenko has been making bold bets. Last year, it took over SunEdison’s India portfolio and this year it completed the world’s largest solar project (500 mw) in five months in Andhra Pradesh. In the past 12 months, it has raised $2 billion in equity and debt.
Sources said the foray into transmission and distribution along with technologies relating to energy storage will help Greenko derisk its portfolio and control the entire value chain. Both GIC and ADIA will be infusing equity to back this transaction, like they have in the past.
CLP entered India’s power sector in 2002. It has grown its wind energy business consistently to become the largest independent producer. It currently operates 3148 mw and has been looking to add 250-300 mw of renewable capacity annually.
Since past two years, cash-strapped Reliance Infrastructure has been looking at exiting capex-heavy businesses such as cement and roads to focus on the newer defence division. It has exited cement entirely and is looking at either divesting or listing its roads portfolio.
R-Infra’s debt on a consolidated basis stands at about Rs 29,000 crore, which, according to the company brass, is expected to fall to Rs 20,000 crore following various deleveraging initiatives.
“There is no exclusivity with PSP and Reliance is free to talk to or engage with various parties. These are crown jewels, so naturally there is interest from investors from all over. But nothing concrete has taken place,” said an official directly involved, on condition of anonymity. The transaction is likely to reduce Reliance Group’s debt by at least Rs 10,000 crore.
“In power distribution, the company has been able to reduce loss levels significantly in both cities with loss level in Mumbai at ~9% (vs average of 30% for India) and at 13% in Delhi (vs 55% earlier),” said Dhirendra Tiwari and Anish Hariprasad of Antique Stock Broking.
“The sale of cement business to Birla Corporation and the recent filing of DRHP for raising funds through InViT (Infrastructure Investment Trust) and the proceeds from arbitration process are likely to lead to substantial reduction of debt,” felt Mangesh Bhadang of Nirmal Bang Institutional Equities.