Tata Power, the country's largest integrated power utilities company, looks set to acquire the renewable energy assets of the diversified Welspun Group, valuing the 1152 MW or 1.15 GW portfolio of operational and almost ready solar and wind farms at close to $1.45 billion, inclusive of its debt, said three people directly involved.
Both sides are in final stages of negotiations and hope to sign a definitive share sale agreement in the next 2-3 weeks to conclude the largest buyout in the sector so far, save any last minute hiccups.
The Tata offer has trumped the closest competing proposal from a consortium of IDFC Private Equity and Finnish clean energy multinational Fortum by at least 15-20%, added these sources. The other serious contender in fray was Greenko Group Plc, a Hyderabad based renewable company controlled by GIC, the sovereign wealth fund of Singapore.
"Tata Power has emerged as the frontrunner among all the other potential suitors valuing the equity of the Welspun platform at Rs 3700 crore. They are willing to take over the operating assets as well as the pipeline " said one of the sources on condition of anonymity as the discussions are still in private domain. Welspun Renewables Energy Pvt Ltd (WREPL), part of the $3 billion Welspun Group, is one of the largest renewable energy firms in India, operating 685 MW of wind and solar energy projects across eight states. Another 200 MW is expected to get commissioned by this June end while a further 257 MW is due by October-November of this year. The business also has around Rs 5900 crore ($893 million) of debt but not entirely drawn down yet as many projects are at different stages of completion. This makes the enterprise value of the business at Rs 9600 crore ($1.45 billion).
Welspun Renewables is a 100 per cent subsidiary of Welspun Energy which in turn is co-owned by the listed Welspun Enterprises. BalKrishna Goenka, chairman Welspun Group and serial entrepreneur Vineet Mittal who is also the Managing Director of the business are the other key shareholders along with a clutch of foreign financial investors.
"Welspun would have invested Rs 2050 crore of equity once the entire portfolio of 1.1 GW was operational. So at this valuation, they are 1.8 times book value -- phenomenal for an unlisted player with some project risks. Most of the listed peers are trading at 1.3 to 1.5 times book value. Anything above Rs 3000 crore is a premium," said a CEO who made a competitive offer.
Welspun valuations also translate to a per megawatt cost of Rs 8.33 crore as against the prevalent replacement cost including finance costs that ranges from Rs 6.5-Rs 7 crore per MW, argues some analysts tracking the sector.
Last year, Tata Power created a separate 100% arm Tata Power Renewable Energy Limited (TPREL) to own and operate all green energy assets of the parent company. The current installed non-fossil fuel capacity is 1674 MW, about 18% of its total portfolio. This includes 573 MW of hydro, 555 MW of wind, 60 MW of solar and a potential 240 MW of geothermal power.