EQ hosted a webinar on ‘M&A (Mergers and Acquisitions) in the RE Sector of India’ on June 16, 2021. The panellists presented their insights and discussed the topic in detail. The speakers discussed the present scenario, key challenges, impact of C&A and more.
The speakers of the session include Harvinder Singh, AVP, Capital & Risk Management, Amplus Solar; Sumit Joge, AGM Business Development, Sprng Energy; Purvi Dabbiru, Partner-Luthra & Luthra; Taral Ajmera, Senior Legal Counsel and Compliance Officer, Cleantech Solar; Mayank Gupta, Director, Project Finance and Renewables Coverage, Standard Chartered and Sachhin Patra, Senior Manager, Enking International.
Harvinder Singh, AVP, Capital & Risk Management, Amplus Solar participate as moderator of the webinar. He informed that in the year 2020, the total deal value of M&A transition in India was around USD 4 Billion, and in 2019 it was at a disclosed value of about $2.7 billion, as per PwC’s estimates.
The sector has a lot of activity as India aims to a target of 175 GW solar installations by 2022, followed by a 450 GW target for 2030, we see the competition between the big players getting intense.
This sector is buzzing with activity. Now and then, acquisitions are happening, whether small or large. The ground has been laid for India to become a wanted global clean investment destination. That’s why we have seen all kind of investors reaching India.
M&A and Growth in RE Sector
Sumit Joge, AGM Business Development, Sprng Energy, presented his view on the growth of the sector. He also highlighted the challenges of the sector. Presenting Sprng Energy, he said, “Sprng energy is a platform by advocates. Our major portfolio includes wind and solar. In March, we touched the level of 1 GW operational projects and some are still in pipeline.”
Discussing the growth of the sector, he discussed mergers and acquisitions. He said, “All the organizations have the option of organic and inorganic growth. One option is that they develop their own projects and the process takes time.
Another option is to acquire the project. This basically helps to kick off the projects and company quickly so that the company can grow soon. That is the reason merger and acquisitions are important and helps the overall sector to grow with a better perspective.”
Key Challenges in M&A
Purvi Dabbiru, Partner-Luthra & Luthra spoke on the key issues that need special focus. “M&A activity space has already seen a boom when it comes to activities of the last year.
I am optimistic about how the M&A on the activity front will continue to see a boom given the growth potential in the sector. We do come across some issues during our diligence.”
Discussing few key challenges in the M&E space, she said, “The first issue is surrounding the change in control restrictions embedded in the Power Purchase Agreements.
Typically, Power Purchase Agreements that we have in SECI etc. don’t permit a change in controlling Shareholding of the developer until one year from the achievement of the commercial operations.
The relaxation of this restriction facilitates shareholding change and transfer after the lapse of the said time period. The ease of relaxation does not come in handy when we look at business transfer sort of structure.
For those, the parties are now looking at is not just consents from your counterparties under the project documents, but they are also looking at having substitution agreements and the assignment agreements or PPAs and the various clearances that the project developer may have obtained in its name in the initial set.
In my opinion, this, in turn, makes parties a little weary of the possibility of renegotiation of contracts and tariffs. That is why this often is seen as a deterring factor.
The second aspect is in respect of land. The nature of land and landholding by the developer from the perspective of whether we have enough consents.” She further discussed the challenges from the perspective of enforcement of contracts.
Covid 19 Impact
Taral Ajmera, Senior Legal Counsel and Compliance Officer, Cleantech Solar discusses the key parameters in due diligence from the side of the developer and adviser as per the perspective of COVID 19.
“Foreign investor interest in the green economy of India has increased a lot. COVID has brought some uncertainties in the past two years but not too badly affected. We are still doing a lot of deals amid COVID and we are able to adopt a new sort of structuring and due diligence process. A new acquisition and financing style has been adopted in India.
Some uncertainties still exist. Most important for solar developers is the delay in commissioning the project because of all the regulatory issues and lockdown. This is leading to a lot of penalties. This is a critical point which investors are considering now.”
Highlighting the high-level considerations of investors, she said, “The supply chain has been badly impacted because of restrictions. 80 to 90 per cent of solar equipment are imported from outside.
The supply chain disruption has badly impacted our industry and developer like us. Investors critically evaluate the company’s plan of supply chain management and alternatives available for the company.
The second consideration is delaying the land due diligence. The third could be compliance with the law relating to COVID. Now it is very important as in-house council and developers like us.
We demonstrate our compliance very well. There are many things as a company we have to comply with which were not needed earlier.
The fourth consideration will be the PPA contract and force majeure laws. These are the few clauses which are very well considered and negotiated, and investors are evaluating it very well.”
International Investors in India
Mayank Gupta, Director, Project Finance and Renewables Coverage, Standard Chartered said “If we look at the broader picture, the Indian renewables still continue to attract a lot of interest from international investors.
Newer names from Europe, the USA, Southeast Asia are actively exploring opportunities in the Indian renewable market.
In my opinion, there are two key reasons why India attracts a lot of attention from international investors. First is the pure scale of it. All these investors have a lot of pressure to deploy ESG and renewables globally.
When they look at Asia, the only two markets which offer significant sizes are China and India. Australia, Japan and Taiwan are there but the real scale is in these two markets. China is very close to private participation.
India with its FDI Policy is very favourably looked at by international investors because of the scale it offers.
There are short term mismatches. Most are medium to long term investors and they see a lot of potential in the market. The second reason is the returns. Tariffs are going down everywhere in the world.
The returns in India even on a risk-adjusted basis continues to be strong when compared to other markets. India still offers double-digit returns, which investors think are pretty solid.”
Sachhin Patra, Senior Manager, Enking International, discussed the carbon credit market and how carbon offsets can be made a part of M&A. “When projects are registered for carbon offset benefits, they get a certain period called crediting period. That is a period they are eligible to avail the carbon offset benefits.
Within that period, they will have to conduct a monitoring and verification exercise. The company or project getting acquired can have the carbon credit right, and after that point of time, the carbon credit rights may be shifted to the acquiring company. The rates of carbon credits have changed significantly, and this trend is going to continue.
The rates are significantly going to rise because most of the companies around the world are coming up with their own emission trading systems, carbon pricing, and carbon tax initiatives.
A portion of these initiatives can be made through the purchase of international offsets. This offset revenue can be a significant portion of revenue.” The session concluded with an interactive question and answer round.