EQ organized a Webinar on ‘Investment and Financing – Challenges and Opportunities in RE Sector’ on June 15, 2021. The speakers of the webinar shared their insights on the topic.
The webinar comprised of two sessions. Karan Mitroo Partner – L&L Partners Law Offices, participated as moderator for the first session.
The speakers of the first session included Naveen Khandelwal, COO & CFO, BrightNight India; Sophea Seng, Director, Energy Finance & Advisory, Societe Generale; Tanya Singhal, Founder and Director, SolarArise; Parin Mehta, CFO, Virescent Infrastructure; Ramakrishna Pataballa, Head of Project, Finance and Advisory, BNP Paribas; Ankur Sood, Investment Officer, IFC, International Finance Corporation; Abhishek Goel, Principal, Global Infrastructure Partners India and Meghana Pandit, Chief Investment Officer, India Grid Trust.
Srishti Ahuja, Partner in Transaction Advisory Services, Ernst & Young LLP, participated as moderator of the second session.
The panellists of the second session were Shyam Sharma, CFO, O2 Power; Rohit Chandak, CFO, Ayana Renewable Power; Prashant Sinha, Chief Risk Officer (CRO), L&T Infra Finance; Girishkumar Kadam, Senior Vice President & Co-Group Head, Corporate Sector Ratings, ICRA; Arpan Garg, Vice President, Investment Banking, HDFC Bank; Vineeta Kaushik, Vice President – Climate Change (North America), EnKing International and Sampath Kumar, Head-Business Development, Tata Capital Limited.
Naveen Khandelwal, COO and CFO, BrightNight India, presented his view and highlighted current issues which need attention to boost equity investment, particular in India.
He said, “No investor will say no to India in terms of the investment. We can learn from the mistakes of other countries. All the government bodies are doing a great job.
Overall, equity investment looks positive. All the investors should do program management, not project management, for more than 3-5 years. The policy should come up in India with the concern of stakeholders, which the government should look into, alignment of stakeholders is needed while making policy.
We need a consistent and strong policy to achieve the target but again as we have many objectives to achieve at the same time. During COVID time in India, the money from the emerging markets has been moved to developed markets. But after things will be in the right direction, the money can again flow to an emerging market.”
Tanya Singhal, Founder and Director, SolarArise, said, “Last year, only 25 per cent of the project has been commissioned of the total which was supposed to be commissioned. Utility-scale has huge potential as India needs 15 GW of installations every year to achieve the target. We would rather wait than go for aggressive bidding.”
Parin Mehta, CFO, Virescent Infrastructure, shared his thought on how M&A is going to progress in the country in the next 2-3 years. He said, “We see lots of M&A activity in India, and lots are waiting. These days we are benefiting due to the low-interest rate due to COVID 19. M&A activity in India will be on rising.”
Abhishek Goel, Principal, Global Infrastructure Partners India, said, “We are extremely interested and at the same time cautious because this sector is dependent on one customer, such as Discom.
Tariff is decreasing, price of raw materials is also increasing & there is a duty that is putting the investment at risk. There are lots of dollars waiting to enter the Indian market, but it can go if India fails to develop circumstance. So, we have to be cautious.
IRR expectation depends upon a different kind of risk. Every investor has a way to see the risk if there is a small reduction in the sector premium and country premium. The return expectation was the same or some higher.
Today, the off-takers can just raise the issue and stop paying, so this is not right at all. There should be some way where you can raise issues if you have to reduce the tariff, Customer’s behaviours are impeccable, as it is for 25 years which again has high risk.”
Sophea Seng, Director, Energy Finance & Advisory, Societe Generale, said, “Funding in an emerging country is a challenge. India is no exception. The procurement system in India is dynamic and flexible, which we like the most.”
Ramakrishna Pataballa, Head of Project, Finance and Advisory, BNP Paribas, said, “India is growing very rapidly and 2020 was a very attractive year for us.
After Taiwan & Australia, India is the biggest market for us, at least for the short term. In India, the commissioning time for solar projects is very less, compared to other countries.
We are getting nine months to commission the project; we are looking for SECI projects mainly, as they have a strong balance sheet. There are lots of opportunities that we are looking up for.”
Ankur Sood, Investment Officer, IFC, spoke on the major challenges as a vendor. He said, “Investors are looking for a stable regulatory policy so that they can plan in advance for the investment.
There is uncertainty for ALMM, PPA & PSA not being signed. We need a proper policy, which the government is doing, but we need to see a stable one.
Distributed sector and Debt Capital Markets (DCM) are the most important market, which we need to unlock. Talking about the bond market in India, the capital is coming to the RE sector from the bond market is quite high.”
Meghana Pandit, Chief Investment Officer, India Grid Trust, presented her view on the InvITs financing in India in the Renewable Energy Sector. She said, “Predominantly, we have been a transmission player. It is capital that developers are also looking at. InvITs essentially provides that monetization mechanism.
The kind of governance measures and transparency, which are inherently there in regulations, provide a lot of comfort to the investors at one time. InvIT provides that mechanism of monetizing capital on a regular basis from the developer perspective.
On the other hand, it provides a yield platform to the investors with relevant governance and transparency norms. It is definitely applicable to the renewable sector. Within the industry, we are seeing a lot of players contemplating renewable InvIT.
Rohit Chandak, CFO, Ayana Renewable Power, said, “The investment committee wants to look at a credible off-taker. They look at the regulatory environment and the comfort if there is abundant clarity being provided.
Authorities have tried to make it quite clear in terms of how these matters will be dealt with. From an overall competitive perspective, it has to be an opportunity which makes financial sense for people that they can generate adequate returns.”
“As far as the take of foreign investors is concerned in India, the sheer size of activity we have in India is quite attractive for them. For long term prospect, the kind of capacity that we have to build, they see a lot of growth coming in from India.”
Shyam Sharma, CFO, O2 Power spoke about investment decisions. He said, “The investment committee wants to look at a credible off-taker. They look at the regulatory environment and the comfort if there is abundant clarity being provided. Authorities have tried to make it quite clear in terms of how these matters will be dealt with.
From an overall competitive perspective, it has to be an opportunity that makes financial sense for people (that they can generate adequate returns.) Right now, our focus is mainly on the central counterpart like SECI, NTPC etc. Even in states, we go along with only high crediting states like Gujarat, Karnataka.
The committee questions ask about the counterpart, the competitive intensity in the belt, technology, land and acquisition. Every company has a different investment mandate and risk ability in terms of cost capital. The variable will be different for every investor.”
Girishkumar Kadam, Senior Vice President & Co-Group Head, Corporate Sector Ratings, ICRA, shared his insights on the evaluation of projects. He also spoke on the viability perspective on the bids in the RE sector. He said, “The overall outlook assessment from on the RE Sector particularly solar is stable.
Thanks to the strong policy focus, highly supportive regulatory framework, must-run status, various RPO norms, which are clearly well established by the state regulators and improved tariff competitiveness that we have seen in the solar market for the last three years.
We see significant investment activity to happen in the renewable space-particularly in solar, followed by the wind for the next three to five years. The overall investment activity is going to stay pretty solid and robust in the RE sector, driven by solar with all fundamental solid demand drivers remaining intact.
The viability of a project has to be analyzed on case to case basis which depends on few important factors- capital cost, PLF expectation and the cost of debt and tenure of debt.”
Sampath Kumar, Head-Business Development, Tata Capital Limited, said, “In Indian perspective, we are looking at a sector where there is some sort of scale. Lenders look at some factors- sponsors, the kind of execution risks in the project, land, transmission etc.
From a lenders perspective, it is the resource that matters because we look at essentially funding over the long term. So, ultimately, what matters to us is the kind of debt sizing criteria. These days environmental factors are also starting to play an important role.”
Arpan Garg, Vice President, Investment Banking, HDFC Bank, presented his views on the project evaluation from the lenders perspective. He discussed the hybrid projects.
He said, “The merit of the hybrid project is that there would be better utilization of the transmission infrastructure. If you ask us, my first preference would be the solar project, followed by the hybrid project and then the wind project. There should be more focus on the project delivery and optimizing the operational performance.”
Vineeta Kaushik, Vice President – Climate Change (North America), EnKing International, said, “carbon markets present an additional opportunity for all the RE projects.
One of the most important fundamentals of the carbon market is that it is not the investment-driven impact. Rather, it is another way around.
You create an impact first, and then you get rewarded in the form of additional revenue which comes through the carbon credit.” She presented a brief of how the carbon market looks like these days.
“In the past three to four years, the market has become very booming, dynamic and acceptable. At present, 3.1 billion credits have already been issued by various authorities.
It is more of a market that is not very regional or local. It is more of the one not restrained by any of the boundaries. It is more international.” The session concluded with an interactive question and answer round.