India's small renewables firms fighting consolidation wave

RattanIndia Power

21/08/2018 08:44

* Smaller renewable firms starved of growth capital
    * Face stiff competition from well-funded, bigger firms
    * Mid-size firms with debt finding it hard to refinance 

    By Promit Mukherjee
    MUMBAI, Aug 21 (Reuters) - Small to mid-sized renewable
energy companies in India are starting to look like attractive
takeover targets as lenders and investors withhold funds,
worried by the stiff competition, weak bond markets, low tariffs
and high debt besetting the sector. 
    The small companies' difficulty in raising cash is keeping
them away from government power project auctions, restricting
their growth and crippling their ability to refinance loans,
said a consultant from a top global consultancy firm. 
    With many smaller operators being gobbled up or offering
themselves for sale, the number of projects being developed
could fall, potentially keeping India from its renewable energy
targets, said the consultant, who did not wish to be named as he
is directly involved with a company that cancelled a bond issue.
    "India's solar industry is becoming a big boys' club," said
Rahul Goswami, managing director of Greenstone Energy Advisors. 
    In a few years, there may be only a few big companies and a
few regional firms active in India's renewable sector, he said. 
    The trend goes back at least to 2016, when Tata Power
 TTPW.NS  bought solar and wind company Welspun Renewable
Energy, but the pace is expected to pick up. 
    "Smaller players are being squeezed out ... due to two main
factors: cost of equipment and ... financing", said Alok Verma,
executive director at Kotak Investment Banking, an arm of Kotak
Mahindra Bank. 
    One of India's largest renewables companies, Greenko Group,
said in June that it was buying 750 megawatts (MWs) of solar and
wind assets from Orange Renewables, because the Singapore-based
company saw few opportunities for growth. The deal has yet to be
closed. 
    Essel Infra, with a renewable power capacity of 685 MWs, and
Shapoorji Pallonji Group's 400-MW solar arm are also in talks to
sell off their assets, one firm and two banks doing the due
diligence for these companies have said. 
    Besides loans, other funding options have also been dead
ends for the smaller companies, further limiting growth
opportunities. 
    ACME Solar postponed an initial public offering (IPO)
announced in September last year as the proposed share issue did
not generate enough interest from investors, confirmed a banker
who was directly involved in the listing attempt. 
    Mytrah Energy, a major mid-sized renewables company, called
off a $300 million to $500 million bond issue earlier this year
as that option also went dry for the sector, and it canned IPO
plans as well, said a separate banker directly involved there. 
    The companies have all declined to comment. 
    This dearth of financing and trend towards consolidation
could be a significant threat to India's target of 175 gigawatts
(GWs) of renewables capacity by 2022, up from 71 GWs now, some
analysts said. 
    Others said a concentration of bigger players, with more
cash and better financing, could mean things move faster. 
    "Consolidation in the renewable energy industry augurs well
for the overall success of the programme ... Large players have
access to required capital at reasonable rates and can procure
the latest technology," said Debasish Mishra, head of Energy,
Resources and Industrials at Deloitte Touche Tohmatsu India. 
    Tata Power, one of India's largest power generators, said in
May it plans to invest $5 billion to increase its renewable
capacity in India fourfold over the next decade to 12 GWs. 
    More than doubling India's renewables capacity by 2022 will
require $76 billion, including debt of $53 billion, the Ministry
of New and Renewable Energy said in July. 
    
    THREAT TO GROWTH? 
    Another problem in India's renewable sector is debt. 
    "Many mid-sized firms have taken debt to fund their equity,"
the partner of an investment firm said, adding that many such
companies will need financial restructuring or have to put
themselves up for auction. 
    This model of financing debt through equity is called
mezzanine financing and tends to involve high interest rates and
an option to convert debt to equity in future. 
    Both ACME and Mytrah are funded by Piramal Finance Ltd via
mezzanine financing, according to statements by the companies at
the time of funding. 
    For lending banks, this quasi-equity is seen as debt, making
the liabilities of these companies look higher than usual, said
the partner, who asked not to be named. The investment firm
handles all kinds of financing, including mezzanine. 
    When companies with mezzanine financing go to banks for
funds for upcoming projects, banks ask them for higher
collateral or offer less cash in loan, said Kotak's Verma. 
    Fitch Solutions said in a note last week that India would
likely miss its renewable capacity targets due to "risks
stemming from bureaucratic, financing and logistical delays." 

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India's renewable capacity growth    https://tmsnrt.rs/2Pgiw60
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 (Reporting by Promit Mukherjee; Editing by Henning Gloystein
and Tom Hogue)
 ((promit.mukherjee@thomsonreuters.com; +91-22-6180-7516;
Reuters Messaging:
promit.mukherjee.thomsonreuters.com@reuters.net))