Pension funds, PE may invest in renewable projects, roads after lockdown

PE firm KKR on April 27 announced it would buy the Shapoorji Pallonji group’s solar assets. This is consistent with the thinking in the sector.

Even as the lockdown has affected mergers and acquisitions (M&A) in various businesses, companies and deal consultants are certain that renewable power assets would be the first on the sale table. They will be followed by roads.

Both the segments remain hopeful that funds – including pension, sovereign wealth, and private equity – will be willing to invest after lockdown. The number of assets up for sale may, however, outdo the buyer interest.

Projects of ACME, Renew Power, Azure Power, among others, are believed to be offering a commissioned capacity for investment, said a sector expert.

Venkataraman Renganathan, managing director, Alvarez & Marsal (India), said: “Though everyone is in wait-and-watch mode, renewables would be the early ones to see some deals once things start moving.”

Funds that have the green mandate have shown an interest in renewable projects.

“There is still an interest from funds, like pension and others, which have long-term investment plans and continue to look for opportunities in investing in infrastructure assets. Some of these also have the green mandate and would want to invest in renewable projects,” said Deepto Roy, partner, Shardul Amarchand Mangaldas.

While global funds might evince an interest in putting in money in renewable energy in India, energy companies are shying away.

Nonetheless, renewable projects have been unable to find buyers and large-scale investors lately. Slow growth in capacity addition and frequent policy changes have made investors wary.

There is a consensus that the trend will continue, with companies, domestic and foreign, shying away from inorganic expansion across sectors, including renewables.

“We expect companies to be less active than funds, led by sovereign wealth and pension funds,” said Rahul Prithiani, director, CRISIL Research.

Barring private-equity investors and a few pension funds, no global energy company has invested in the Indian renewable space in recent times.

French energy major Engie left the Indian market while Spanish wind turbine maker Gamesa (now Siemens Gamesa) has shifted its focus from bidding for wind power projects to being an EPC (engineering, procurement, construction) company in India.

A similar trend is playing out in the road sector with PE firms picking up large interests in operational roads.

“Deals will take time to get finalised because a private investor needs to visit the site and verify the assets. However, people are interested, there is enough capital in the market, and preliminary discussions are on,” said a senior official of a private equity fund with significant exposure to infrastructure in India.

Difficulties in getting credit may be a factor in pushing renewable energy firms to look for equity partners.

“Banks and domestic financiers will now be more cautious in lending to renewable energy companies. The PE investor cycle is barely five years. Long-term domestic financing is still missing for Indian renewable energy players,” said the chief executive officer of a Delhi-based renewable energy company.

The same holds true for road companies, which were in the market before Covid-19 owing to high debt concerns.

“Most of those were struggling, and we see more aggression in selling those assets now,” added a sector expert.

In January this year, KNR Constructions announced selling its equity stake in KNR Walayar Tollways road asset to Singapore-based Cube Highways.

In February, Singapore’s GIC invested Rs 3,753 crore in IRB Infrastructure Developers Private Infrastructure Investment Trust (InvIT).

The IL&FS group too is discussing road assets. In the past, Reliance Infrastructure had announced plans to exit the full road portfolio.