Private Equity funding in the Indian Power Sector is drying up fast due to the prevailing uncertainty over reforms in the sector.
As captured by Power India; Indian Power Sector during the 12th plan will need around 13.72 Crores to add 76,000 MW of Capacity.
We believe that funding so much amount of the money to the cash hungry power sector is a very tough task; considering that one in every three thermal power plants in the country is operating on a critically low supply of coal and the government has not been able to solve the problem.
As said by Siddharth Shah of Nishith Desai Associates,
“Most investors have gone into a-wait and-watch mode because this is a sector which requires larger-ticket size deals. Investor appetite is beginning to fade with so much of uncertainty and this is obviously impacting the sector.”
We further found that various Private Equity funds which normally seeking to fund the big ticket projects such as power project are also currently shying away from these investments. Whatever deals are happening; size of them are also getting contracted.
As captured by Money Control the four deals this year have ranged from USD 5 million to USD 30 million. Investors are losing interest in the power sector as capital has become more expensive for power projects. Even public sector power projects are losing their sheen.
However as a little ray of hope; not all PE Players are diffident.
SM Sundaram, partner & CFO, Barring Pvt Eq Partners India, says,
“These are not things in which you can get in and out. Forget about a few quarters or years. If you are a long term player, there are opportunities out there.”
Nevertheless, experts say the only way these power companies will prove good investments is if their problems regarding fuel supply and land acquisition are ironed out, and their main customers – the state electricity boards – become financially solvent soon
More Literature on this topic:
Power India – A popular blog on Indian Power Sector
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