Sembcorp to buy out IDFC’s stake in Semcorp Green Infra

Neil McGregor, group president and CEO of Sembcorp Industries. Photo: Bloomberg

New Delhi: Singapore-based power producer Sembcorp Industries Ltd on Thursday announced the acquisition of IDFC’s remaining 28% stake in renewable energy firm Sembcorp Green Infra (SGI) for Rs1,410.2 crore (around Singapore $301 million) to become its sole owner.

In February 2015, Sembcorp Industries acquired a 60% stake in IDFC Alternatives Ltd-backed renewable energy firm Green Infra Ltd for Singapore $227 million (around Rs1,060 crore). The acquisition marked Sembcorp’s entry into India’s renewable energy market.

The latest announcement comes at a time when financing at the lowest cost has become the key to success, given India’s record low solar and wind energy tariffs.

Also, there have been fewer clean energy deals because of concerns that electricity offtake commitments at higher tariffs may not be honoured.

“SGI has close to 1,200 megawatts of wind and solar power capacity in operation and under development. As of end-2016, the net asset value and net tangible asset value at SGI level were S$427.6 million and S$426.9 million, respectively. The net profit at SGI level for the 12-month financial period ended 31 December 2016 was approximately S$39.0 million,” Sembcorp said in a statement. The deal is expected to be completed in the first quarter of 2018, with the acquisition to be funded through internal funds and borrowings with the payment to be made in rupees.

“SGI’s sustained contribution in de-carbonising, while also generating a 3.2x return for IDFC PE Fund III proves the point and sets an example for other investors to follow,”said Satish Mandhana, managing partner, private equity and sustainable initiatives at IDFC Alternatives in a statement.

Sembcorp’s enhanced India bet comes against the backdrop of record lows registered in wind and solar energy tariffs, at Rs3.42 per kilowatt-hour (kWh) and Rs2.44 per kWh, respectively.

Foreign investments hold a special import for India’s green energy space as the lower cost of foreign capital and the size of the market has helped bring down tariffs.

Sembcorp has been a part of these aggressive bets, with Green Infra bidding a then-record low Rs3.46 per kWh wind power tariff in February to win contracts for 250 megawatt (MW). It was also in the fray for 750MW of solar capacity on offer at Rewa in Madhya Pradesh.

“Buying IDFC’s stake in SGI re-affirms Sembcorp’s commitment to a long-term presence in India. The deal will allow us to drive SGI’s growth as the 100% owner, and increase our investment in a wind and solar generation portfolio that strongly complements our thermal power assets in the country,” Neil McGregor, group president and chief executive officer of Sembcorp Industries, said in the statement.

Sembcorp is one of the few foreign utility firms that own thermal power assets in India. Others include American firm AES and Hong Kong-based CLP Holdings. The Singapore company in 2010 made its first power sector investment in India, when it acquired a stake in Gayatri Energy Ventures’s Thermal Powertech Corp. India, a 1,320MW thermal power plant.

“With the far reaching energy reforms and electrification underway in India, there is a demand for both renewable and thermal power in the country,” said Vipul Tuli, chief executive officer and country head for Sembcorp India, in the statement. Sembcorp owns around 11,000MW of gross power capacity globally and has 8,000 employees.

According to government think tank NITI Aayog’s draft national energy policy, “By 2040, the energy mix of India is expected to become renewable intensive, with 46-52% of the power capacity being solar and wind dominated.” India has a target of installing 175,000MW of renewable energy by 2022. Of this, 100,000MW is to be generated by solar projects and 60,000MW by wind projects.

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