The Piramal Group led by Ajay Piramal is scouting for investment opportunities in the Indian power sector, in a move that is as much an indication of the intentions of a conglomerate with money to invest as it is of growing investor interest in the business.
“The Piramal Group is looking at investment options and is evaluating opportunities. It has the resources and the appetite,” said a Mumbai-based power sector analyst who spoke on condition of anonymity.
A Piramal Group spokesperson, in an emailed response, said: “We evaluate opportunities across sectors including conventional power,” and added: “As a matter of business policy, we do not comment on specific opportunities.”
The power sector analyst cited above said several transactions were in play and cited investments made or interest evinced by foreign entities such as JPMorgan Chase and Co.’s asset management unit, Sembcorp Industries Ltd of Singapore and France’s GDF Suez SA, among others.
JPMorgan Asset Management invested $150 million in the Bhaskar Group’s Diliigent Power Pvt. Ltd in May 2013; Nagarjuna Construction Co. Ltd has been reported to be in talks with Sembcorp to sell a stake in a power plant; and Meenakshi Energy and Infrastructure Holdings Pvt. Ltd has agreed to sell a 74% stake in a 1,000 megawatts (MW) coal-fired power project to GDF Suez.
The debt-laden Jaypee Group is close to selling two of its three operating hydroelectric projects to a consortium led by Abu Dhabi National Energy Co. PJSC, known as TAQA.
The analyst explained that reasonable valuations have played a part in reviving investor interest in the power sector, as has the rupee’s depreciation, which has sweetened such deals for foreign buyers. The rupee has depreciated 11% against the dollar this year, making Indian assets cheaper for foreign buyers to acquire.
To be sure, valuations have become reasonable because many Indian promoters are looking for investors (if not to sell out altogether). Their problems include the domestic economic slowdown, high borrowing costs, delays in land acquisition and environmental clearances, and fuel shortages.
The Piramal Group itself is flush with funds after a 2010 deal in which it sold its pharmaceutical business to US drug maker Abbot Laboratories for Rs.17,000 crore.
Piramal Capital, which has a structured investments business unit, has invested Rs.550 crore in Navayuga Road Projects Pvt. Ltd, the road development arm of Navayuga Engineering Co. Ltd, and another Rs.500 crore in infrastructure company Green Infra Ltd. Piramal Capital picked up about a 10% stake in the Chennai-based vehicle loan company Shriram Transport Finance Co. Ltd for Rs.1,652 crore in May.
Analysts and experts say the evidence on hand does suggest a return of investor interest in the power business.
“There are some transactions that are happening. There are distressed assets; with valuations being depressed, it make sense,” former power secretary Anil Razdan said. “For the sector to fully recover, more financial closures need to be done for which the fuel issues need to be resolved. The projects need to run on full capacity to earn revenue.”
Power plants have been operating below production capacity because of fuel shortages. Things seems to be improving with the utilities tying up fuel supply agreements for 157 units totalling 71,000MW till November.
“Also, with the elections approaching, the demand for power will go up and to that extent there will be more power procurement by the state governments with state resources being deployed for the same,” Razdan added.
Indeed, trading in electricity saw a spike as the five states of Madhya Pradesh, Rajasthan, Chhattisgarh, Delhi and Mizoram, fearful of political backlash, bought additional power to avoid outages (and consequent voter outrage) in the November-December state assembly elections.
“We have to also keep in mind the fact that these asset sales are happening in projects that are operational or will soon start commercial operation. This mitigates the risk of land acquisition, approvals, clearances and project development. This appeals to foreign investors,” the power sector analyst mentioned in the first instance said.
Sambitosh Mohapatra, an executive director at PricewaterhouseCoopers Pvt. Ltd, said: “India is witnessing a revival of interest in investments, especially of international operators and investors from the Middle East, Europe and Japan, especially in the areas of renewables, conventional power generation (with advanced construction stage or operational) and electrical equipment.”
“It’s on the back of a positive outlook on the changing contours of the economy and expectations of improved governance. It also marks a phase of consolidation with the entry of large strategic operators bringing in synergies buying out small local players more interested in the EPC (engineering, procurement and construction) play,” Mohapatra added.
India’s ambitious bailout plan for state government-owned distribution companies announced in September last year is also expected to help improve the finances of state electricity boards and hence their ability to procure power.
“The scheme has been successfully implemented in Tamil Nadu, UP (Uttar Pradesh), Rajasthan and Haryana. FRPs (financial restructuring plans) have also been finalized for the states of Bihar, Jharkhand and Andhra Pradesh. Rationalization of tariffs has already been carried out by 24 SERCs (state electricity regulatory commissions)/JERCs (joint electricity regulatory commissions),” the power ministry said in a statement on Monday.
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