Sembcorp Industries Ltd, promoted by Singapore’s sovereign wealth fund Temasek Holdings Private Ltd, is set to infuse fresh capital of about $600 million into its power business in India, Sembcorp Gayatri Power Ltd (SGPL), which is operating a 1,320 megawatt (MW) thermal power plant in Andhra Pradesh.
The capital infusion, in the nature of fully guaranteed debt from the parent group, will lower the existing domestic debt in the project from about $1,050 million to about $450 million, a person with direct knowledge of the matter said on condition of anonymity. SGPL built the power capacity at an investment of about $1.5 billion.
An email sent to Sembcorp on Monday morning remained unanswered.
Fresh capital infusion from the parent indicates the group’s confidence in the long-term prospects of conventional thermal power business in India, which at present is banking on a host of policy reforms in the electricity value chain starting from transparent coal supplies to debt restructuring in the distribution business for a growth stimulus.
The cash crunch of state-owned power distribution companies, which are going through a debt recast, limits their ability to buy power leading to an artificial suppression of electricity demand and puts thermal power producers like SGPL under pressure. Muted demand for long-term power purchase deals forces thermal power producers to sell electricity through short-term deals and exchanges, which affects their rate of return.
As of 23 February, SGPL, which commissioned its second 660 MW unit, has a total capacity of 1320 MW. Sembcorp group, which owns 88% in SGPL, had said quoting SGPL managing director Atul Nargund that the successful completion of the supercritical thermal power plant reinforced the group’s “long-term commitment to supporting India’s continued development and its energy security”. The supercritical thermal plant located in Nellore district is currently selling power without a long-term power purchase agreement.
“Sembcorp has a substantial commitment in India, which is one of the key markets. There is a strong belief in India’s long term growth story. The project will be supported as long as it is necessary,” said the person quoted above.
According to Sudip Sural, senior director, Crisil Ratings, one major milestone that will indicate the revival of the power sector is distribution firms eliminating the gap between their average revenue realized and the cost of power supply by the deadline set in Ujjwal Discom Assurance Yojna, the turnaround scheme, of 2018-19.
Sembcorp Utilities Ltd, an arm of Sembcorp Industries, has solar and wind power assets in India. It has major expansion plans in the country including in onsite logistics of large petrochemical complexes, waste management and urban planning.
“Sembcorp has close to US$4 billion investment in India in equity and debt representing 30% of the company’s global balance sheet. That will be maintained going forward if sustainable returns are on offer,” added the first person quoted above.