NEW DELHI | MUMBAI: Greenko, backed by Singapore’s GIC and Abu Dhabi Investment Authority, is close to striking a deal to purchase wind and solar energy producer Orange Renewables for an enterprise value of about $1 billion, said people with knowledge of the matter.
Having entered into exclusive negotiations with Delhi-based Orange, Greenko is likely to make a formal announcement by this month-end, said the people cited above. The acquisition, if it goes ahead, will help the Hyderabadheadquartered company increase its operating portfolio to about 4 gigawatts from 3.2 gw, making it the largest clean energy provider in the country, overtaking ReNew Power, which has a commissioned and planned capacity of 3.2 gw of wind and solar projects.
Orange is owned by Singaporebased AT Capital, a fund that has India-born billionaire Arvind Tiku as its primary sponsor. Based in Russia, Tiku made his fortune in the Central Asian oil and gas industry.
The company was put on the block around a year ago. Investment bank Rothschild represents the sellers. Greenko entered the picture after ReNew withdrew following initial talks. Hero Future Energies, Sembcorp India and PE fund Actis were said to be among the other contenders in the fray.
Greenko declined comment on what it characterised as speculation. Orange Group CFO Sanjay Bakliwal didn’t respond to queries. Orange has 750 megawatts of operational wind and solar generating plants in five states — Andhra Pradesh, Karnataka, Madhya Pradesh, Rajasthan and Maharashtra. Another 250 mw is in the pipeline.
Additionally, Orange has permits for another 1 gw of projects. Greenko is expected to buy the holding company that owns all the assets.
The equity value of the company is likely to be about $350 million and it has debt of around $650 million, said the people cited above. “Large-scale, pure-play renewable companies like Greenko are banking on their operating experience, ability to generate efficiencies and wide balance sheets to make bold acquisitions,” KPMG partner Anish De told ET.
“Smaller players will find it difficult to stand up against the big boys in competitive bidding, which is why consolidation is inevitable in the industry.”
GREEN(KO) TO ORANGE
Greenko has raised more than $2 billion through equity and debt in the past 18 months. It acquired SunEdison’s portfolio of solar projects for about $300 million two years ago. It also attempted an acquisition of Reliance Infrastructure’s electricity distribution business, ET reported in August last year. The Adani Group eventually purchased that business.
Greenko’s operating portfolio is believed to have generated around $450 million EBITDA (earnings before interest, taxes, depreciation, and amortisation) in FY17, likely making it one of the top five private sector owners and operators of power assets across all verticals (coal, renewable and hydro).
Rival ReNew Power, which has raised more than $850 million in equity funding from a variety of investors such as Goldman Sachs, Abu Dhabi Investment Authority and Japan’s JERA Co, had also held discussions to acquire Orange’s portfolio. The renewable energy player is preparing for an initial public offering (IPO) later this year.
Tariffs for wind and solar power have declined to levels that make sources of energy such as thermal power, according to industry experts. The costs of commissioning renewable energy capacity have also come down proportionately though challenges such as storage and supply over a sustained 24-hour period still need to be addressed, these experts said.
“The renewable bids are taking place at prices below the cost of debt. Greenko has stayed away from auctions and instead has grown through a combination of M&A and large-scale, complex greenfield projects,” said an executive tracking the company, on condition of anonymity.
The average feed in tariff for the operating Orange portfolio is around Rs 4-5 per unit. Of the 750 mw, 200 mw is solar and the rest is wind. The projects in the pipeline, mostly won through recent wind auctions, have an average tariff of Rs 2.70 per unit. The projects have turnkey contracts with Gamesa and Suzlon. The solar foray has been more recent with a maiden project in Maharashtra as of now.
Renewable energy accounts for 15% of India’s total energy generation capacity of 300 gw, according to the latest government estimates.
Orange founder Tiku has interests in oil and gas, property and renewable energy, held through his private holding outfit AT Holdings. Tiku left India at age 18 to study mechanical engineering in Russia and worked as a commodities trader before branching out on his own in oil and gas in Kazakhstan. Among other businesses, he owns a minority stake in London-listed Kazakh oil explorer Nostrum Oil & Gas along with steel magnate LN Mittal and Kazakh billionaire Timur Kulibaev, son-in-law of President Nursultan Nazarbayev.
In 2010, he and Kulibaev became embroiled in a criminal case linked to the sale of Kazakh oil assets to the Chinese, but a Swiss court cleared them of all charges three years later. Mittal recently divested his economic interests in Tiku’s entities.