Actis and I Squared in frame for IL&FS renewable assets

07 December 2018 - 12:00 am UTC

Actis, Brookfield, I Squared Capital and Goldman Sachs-backed ReNew Power are among investors said to be interested in buying the renewable energy assets of Infrastructure Leasing & Financial Services Ltd (IL&FS), sources have said.

Last month, IL&FS had invited Expressions of Interest (EoI) for selling a controlling stake in its renewable energy portfolio.

The company’s renewable energy portfolio comprises operating wind power generating plants with aggregate capacity of 873.5MW and under construction wind projects of 104MW. The portfolio also consists of 300MW solar projects under development by IL&FS on behalf of other corporates.

The last date for submitting EoIs is 10 December, according to an IL&FS advertisement.

A source with the knowledge of the matter said the enterprise value of the assets is about INR 80bn (USD 1.1bn) — equity of INR 25bn and debt of INR 55bn.

But a buyside fund manager who evaluated the assets, says the assets may attract bids in the range of INR 35bn to INR 45bn.

“I would be very surprised even if the most optimistic bidder values the asset beyond INR 45bn,” the manager said. “Investors will definitely take into account that it’s a fire sale, hence bids may go below fair value,” he added.  

He cited factors such as almost nil equity value, high debt, falling renewable power tariffs, the ongoing crisis at IL&FS as some of the factors that are likely to influence valuations.

Japan’s Orix Corporation holds 49% stake in IL&FS Wind Energy Ltd, the IL&FS Group subsidiary that controls the assets. According to a local media report, Orix may exercise its right of first refusal if bids for the assets fall below INR 23bn.

IL&FS, backed by Abu Dhabi Investment Authority (ADIA), is India’s largest private infrastructure financier and developer with total liabilities of INR 1trn (USD 13.5bn) as of 31 March. Since August, it has defaulted on multiple loan obligations. The asset sale is an integral part of its strategy to cut its debt.

Wind Tariffs
The average life of the 873.5MW wind assets is more than four years and they are spread across the states of Rajasthan, Gujarat, Tamil Nadu, Karnataka, Andhra Pradesh, Madhya Pradesh and Maharashtra providing high geographical diversification, rating agency ICRA wrote in a report in September.

The average power purchase agreements (PPAs) tariff for capacity tied up with distribution utilities with the state distribution companies have remained more than INR 4.5 per unit, the report said.

But wind and solar energy tariffs have since dropped to less than INR 3 per unit in renewable auctions this year.

While a PPA with utility in Maharashtra has a tenure of 13 years, all the other PPAs are tied-up with tenure of 25 years, the ICRA report said.

The federal government-backed board of IL&FS has appointed Arpwood Capital and JM Financial as financial and transaction advisors, along with Alvarez & Marsal as resolution consultants.

IL&FS Group is owned by Life Insurance Corporation of India (25.3%), Orix (23.5%), ADIA (12.56%), Housing Development Finance Corp (9%), Central Bank of India (7.67%) and State Bank of India (6.4%).

IL&FS and Actis declined to comment. Brookfield, I Squared and ReNew didn’t reply to request for comments.


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