Shang­hai Elec­tric Eyes ILFS Units

Chi­nese co in talks to buy up to 74% in 8 projects, start­ing with 4,000 mw Cud­dalore plant

The Economic Times - - Front Page - BAIJU KALESH

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.”

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