Shanghai Electric Eyes ILFS Units
Chinese co in talks to buy up to 74% in 8 projects, starting with 4,000 mw Cuddalore plant
ILFS Energy Development Co, which is developing coal- and gas-based power plants with a capacity of about 7,500 mw across the country, has begun talks with Shanghai Electric Group to sell a stake of up to 74% in eight projects, starting with its 4,000 mw power plant at Cuddalore district in Tamil Nadu, a person with direct knowledge of the development said. “We are in discussions with various strategic investors including Shanghai Electric to sell a majority stake in our special purpose vehicles created to build 7,500 mw in different states,” the person said. “The sale will be in various stages starting with 26% and will later end up selling up to 74% with the parent keeping the rest 26%.” The talks are project-specific and will depend on how the ongoing dis- cussions conclude, the person said. Apart from unlocking value, ILFS also wants a strategic investor which can execute engineering and procurement work as well as operations and maintenance once the plants are completed. The Cuddalore plant, of which the first phase of 600 mw will start before August, needs an investment of .` 20,000 crore with .` 6,000 crore as equity. A 74% stake could fetch the company a premium on top of this .` 6,000 crore. With many of these eight projects at various stages of implementation — some of them are already running — ILFS Energy Development Co (ILFSEDCL) wants to unlock value and invest the money in new projects.
The partner will help ILFS build more plants to raise capacity to 12,000 mw by 2019
ILFSEDCL expects the new government will help Indian companies and remove hurdles, including coal linkages, in the way of building power plants in India, which has a deficit of 3.9% amid an economic slump with industrial activity sluggish. The peak deficit last year was roughly 9%. The new partner will help ILFSEDCL build additional power plants that can raise its generating capacity to 12,000 mw by 2019. Shanghai Electric Power, one of the China’s largest power producers and equipment suppliers, executes business under various subsidiaries and employs 6.17 lakh people. Last year, it reported sales of $15.03 billion and a net profit of $1.19 billion. The Chinese company has started winning business orders from India only recently. Last year, it won a $10-billion order to sell power equipment and services from Reliance Power, owned by billionaire Anil Ambani. Three Chinese banks — Bank of China, China Development Bank Corp and Export Import Bank of China — have loaned $1.1billion to Reliance Power to build its power plant at Sasan. Consultants said there should be an inter-government relationship before any investment flows from China to India. “It depends on how the new government positions itself with China,” said Kuljit Singh, partner and head, infrastructure, at EY, a global consultant. “Once that is clear, Chinese investments will flow into India.” The companies will also need to adjust to the way in which the domestic market functions. “The peculiarity of the Indian power mar- ket is something that Chinese companies will have to get used to,” he added. Overseas interest in Indian power plants has been rising. In February, Abu Dhabi’s flagship energy and utilities company TAQA (energy in Arabic) purchased two hydropower projects in Himachal Pradesh from Delhi-based Jaypee Group at an enterprise valuation of $1.9 billion (Rs 12,000 crore). Earlier, in December, French energy powerhouse GDF Suez purchased a controlling stake in a power plant owned by Hyderabad-based Meenakshi Energy. “Many Indian developers are keen to partner with foreign companies to raise equity for their project as there are fewer avenues to raise money such as public offers and from private equity funds,” said Singh of EY. “Another challenge is to maintain and operate power plants.”