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The infrastructure fund of multi-asset manager IDFC Alternatives is set to make its biggest acquisition till date by taking over the entire 200 megawatts of First Solar’s operational portfolio of solar power projects in India for around Rs 1,950 crore ($300 million) as consolidation picks up momentum in the renewable energy sector.
These projects — seven in all — are located in Telangana and Andhra Pradesh. The definitive agreements between both parties have been signed and a formal announcement is expected today (Monday). The transaction is expected to close by December.
Arizona-headquartered First Solar is an American photovoltaic (PV) manufacturer of rigid thin film modules, or solar panels, and a provider of utility-scale PV power plants and supporting services like finance, construction, maintenance and end-of-life panel recycling. In India, it has supplied over 1gigawatt (GW) worth of panels while globally its supplies are worth over 17 GWs, according to the company's website.
Its current market cap is $5.1 billion. It also develops greenfield solar parks and sells them once fully operational. This is the first such divestment by the firm in India. A clutch of under-construction assets have been kept out of the ambit of this transaction for the time being as they lack operating and payment history but may get added subsequently.
"We are evaluating various deals across wind, solar and mini hydro. We continue to have access to significant amount of capital to invest but are interested in deals where there is a clear intent to consummate a trade," Aditya Aggarwal, partner, Infrastructure, IDFC Alternatives told ET.
IDFC Alternatives is IDFC Ltd's alternative asset management vertical managing over $3.4 billion on behalf of leading institutional investors from across the world. With three distinct asset classes — private equity, infrastructure equity and real estate — the firm has become the largest homegrown money manager that pools and deploys capital in unlisted Indian companies and projects.
The First Solar acquisition will be carried out by a platform company wholly owned by IDFC's infrastructure fund called Vector Green. Vector Green in the past has acquired a 24 MW wind asset from Naveen Jindal's Jindal Steel and Power and another 40 MW solar project from Punj Lloyd. This would be its most ambitious takeover. The plan, said IDFC Alternatives officials, is to own and manage around 500+ MW by this year end of diversified and derisked projects with at least 12 months of operating and payments history with regulatory approvals.
Margins have been squeezed in wind and solar energy on account of competitive bidding, having a direct bearing on EPC or turnkey project developers, said Debasish Mishra, senior director, consulting, Deloitte Touche Tohmatsu.
“I do expect consolidation going forward between smaller generators or equipment makers. Ownership with predominantly rest with bigger players like Greenko, ReNew, Tatas and maybe even Softbank or the larger financial sponsors,” said Mishra.“In the 50-200 MW capacity bucket there are at least 15-20 players and they will be prime candidates for takeover. Valuations though are getting stretched.”
In the past, the fund had twice attempted to take over large portfolios. In 2014, it had teamed up with Abu Dhabi's Taqa and Canadian pension fund PSP Investments to buy two hydropower plants from Jaypee for Rs 10,500 crore but the deal collapsed after Taqa pulled out. Again in 2016, Tata Power pipped the fund to buy the renewable portfolio of Welspun for Rs 10,000 crore ($1.4 billion).
The next 12 months will be interesting for wind and solar sectors from a regulatory and competitive intensity standpoint, said IDFC's Aggarwal.
“The same will also determine as to how much incremental capital will keep flowing into these sectors and more importantly on basis of what sort of capital cost, financing and receivables assumptions especially in the new builds being approved by the boards and the investment committees,” Aggarwal said. “As in the past, rather than chase capacity indiscriminately, we would rather grow our renewables portfolio in a calibrated manner.”
IDFC's infrastructure fund has raised close to $2 billion across two funds of $1 billion each, in 2008-9 and in 2014, to become the only one to have raised a second India dedicated follow-on infrastructure fund in the country.
Within the fund, so far there are three platforms — roads, telecom and renewable. The roads platform known as Highway Concessions One Pvt. Ltd owns seven assets where all barring one are National Highways Authority of India (NHAI) toll roads. In telecom, the fund has invested Rs 600 crore for a 33 per cent stake in mobile tower company Ascend Telecom with an eye on a majority stake. The renewables play is through Vector Green.
In fiscal 2017, India added 5,526MW of new solar capacity (up 83 per cent from the previous year) and 5,400MW of new wind capacity (up 63 per cent), according to consultancy Bridge Io India.
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