Mumbai: Singapore-based Ascol, a consortium of four private equity funds, will purchase 74% in IL&FS Tamil Nadu Power Company for R4,000 crore, a person with direct knowledge of the development said. The company is building a 3,600-MW coal-fired power plant in Cuddalore in Tamil Nadu.
India’s leading financial services provider IL&FS owns IL&FS Energy Development Company (IEDCL), the promoter of the power company. The company needs to invest roughly R18,000 crore over the next four years to build its full capacity. “We need to spend roughly R5 crore to produce a megawatt of power with imported coal,” the same person said.
After firing the first phase of 1,200 MW by 2014, the power plant will add 800 MW every six months.
The stake purchase signals overseas investors’ interest in new power plants which have government clearances and fuel supply security. For some time, these investors were skipping power projects as uncertainty on coal linkages and regulatory delays push up costs and delay financial closure.
IL&FS Tamil Nadu, which will execute and later manage the power plant, had last year purchased a coal mine in Indonesia for $160 million to ensure sufficient coal to fire its plants and appointed Punjab National Bank to syndicate funds for the project. The company will have to raise R12,600 crore from a consortium of lenders and will invest its equity component of R1,400 crore in the project over a period.
This is the largest investment by overseas investors since some private equity funds purchased 44% in Asian Genco which is building a 1,350 MW power plant for R2,000 crore in 2010.
Morgan Stanley Infrastructure Partners, Goldman Sachs Norwest Venture Partners, Everstone Capital and PTC India Financial Services invested in Asian Genco which has plans to build hydro power, thermal and non-conventional energy units.
“After investing $3-4 billion in power companies with further commitment up to $10 billion, PE funds may be in wait-and-watch mode, but there is a lot of interest from global strategic investors,” says Seshan Balakrishnan, director, infrastructure practice at consulting firm Ernst & Young India. His comments are not specific to the story.
“These investors can have better negotiating power with Indian companies which face fewer avenues to raise funds and need to spend only less with appreciating rupee.”
PE funds have been avoiding government-dependent industries due to delays and fear of cost overruns, even as there are exciting opportunities of power shortage inIndia, the peak period between 5 pm and 11 pm at roughly 14%.
Delays on land, environment and fuel linkage drive up project costs and promoters are unable to seek higher tariffs, Rahul Bhasin, managing partner, Baring Private Equity Partners said in an earlier interaction with FE. “The entire cost structure goes up because of this delay.”
There are four key risks to power projects, says Seshan Balakrishnan of E&Y. “One, developments rights like land, environmental clearances, second, fuel and water linkages, third speedier execution and the last payment risks from buyers.”