NEW DELHI : American private equity firm Global Infrastructure Partners (GIP) has appointed Standard Chartered to conduct the sale of its Indian clean energy platform Vector Green Energy, two people aware of the development said, adding that they expect a potential deal at an equity value of around $400 million.
Investor interest in India’s clean energy sector has picked up after the Andhra Pradesh high court recently ruled in favour of renewable energy developers over the state government’s decision to reopen contracts they had signed under the previous N. Chandrababu Naidu government.
“The process has just been launched," one of the two people cited above said. “Last year, there were two separate sets of unsolicited in-bound interest shown from a strategic and financial investor, respectively, for Vector Green Energy. Those were unsolicited offers and were in the range of $375-$400 million, post which GIP decided to run a wider market process once the Andhra Pradesh issue was resolved. Not that the Andhra Pradesh project is a big part but only 10% of the Vector Green portfolio. Let the market decide what the fair value of the portfolio is," the person said on condition of anonymity.
Spokespersons for GIP and Vector Green Energy did not answer queries emailed on Saturday, while a spokesperson for Standard Chartered declined comment. GIP India partner Aditya Aggarwal did not answer queries sent on Saturday.
This comes against the backdrop of large deals returning to India’s green energy space such as Canada’s Brookfield Asset Management Inc. looking to buy a substantial stake in Mahindra Susten, and Shell Plc becoming a front-runner for Actis Llp’s Indian renewable energy platform Sprng Energy, as reported by Mint earlier.
Infrastructure-focused PE firm GIP has 700 megawatt (MW) operational and 300MW under-construction wind and solar energy assets under Vector Green Energy, besides another 1 gigawatt (GW) in the pipeline that is investment ready
GIP had acquired green energy assets from IDFC Alternatives in 2018, and Vector Green also acquired 306MW of solar projects from RattanIndia Group in September 2020.
According to a 16 March statement from Fitch Ratings, “The high court judgement on 15 March 2022 affirmed that tariffs fixed in PPAs cannot be renegotiated during the term of the PPAs, typically 25 years. Changes to PPAs, if any, can be made with the consent of both parties and not unilaterally. The court also set aside the December 2019 judgement by the same court to make interim payments based on tariffs of ₹2.43/kWh and ₹2.44/kWh for wind and solar power generation, respectively, which were around half the tariffs in the PPAs. Fitch believes the ruling will also bolster investor confidence in the renewable energy sector as risks of tariff renegotiation and payment delays are mitigated."
Around 5.2GW of solar and wind energy projects with an estimated debt exposure of more than ₹21,000 crore was hanging fire in Andhra Pradesh, following a decision by chief minister Y. S. Jagan Mohan Reddy’s government to reopen renewable energy contracts signed during Naidu’s tenure.
The fund-starved state-run electricity distribution companies (discoms) reduced the contractually approved tariff under the PPA to ₹2.44 per unit for solar projects and ₹2.43 per unit for wind projects since July 2019, and informed the developers that in the event of them not agreeing to the revised tariffs, the PPAs would be terminated. Also, according to the developers, the contracted quantum of wind and solar power in the PPAs was not being procured by the state.
“The HC in its latest order has thus reinforced the sanctity of PPAs signed between the wind and solar (or “renewable energy / RE") independent power producers (IPPs) and state discoms. As per the order, the HC has directed the state discoms to honour the terms of the signed PPAs and clear the pending payments, as per the agreed tariff under the PPA within six weeks from the date of the order," ICRA said in a 16 March statement.
The Andhra Pradesh government’s move prompted the Union government to pitch for an Electricity Contract Enforcement Authority to ensure that conditions in PPAs are followed.
“GIP expects significant interest for Vector Green post the judgement. The bulk of the portfolio is AAA rated, with the minimum rating in the portfolio being AA. The process is expected to be completed in next two-three months," said the person cited above.
