French government-owned power utility Electricité de France SA (EDF) is in talks with Bangalore-based infrastructure conglomerate GMR Group to acquire a stake in the latter’s 900-megawatt (MW) Upper Karnali hydropower project in Nepal.
“EDF is interested in acquiring a stake in the project,” said a person aware of the development who spoke on condition of anonymity. He pointed to EDF’s interest in the Indian energy sector as reflected by its earlier investment in ACME Solar Energy Pvt. Ltd.
A second person familiar with the transaction-in-the-making confirmed that there have been talks between GMR and EDF. A spokesperson for GMR said in an email that the company would not comment “on speculation”.
Mint couldn’t ascertain the value of a possible deal.
EDF’s interest in India could indicate a possible return of investor interest in the Indian power sector. Several investors are looking at buying power assets in India, Mint reported on 26 December.
EDF’s renewable energy arm and EREN, another French company, plans to invest a total of Rs.550 crore in New Delhi-based ACME Solar to set up solar power plants in India, Mint reported on 5 December.
GMR Group has previously articulated its “asset light, asset right” strategy to “develop, build, create value, divest and reinvest”. The group has sold several of its power, road and airport projects. GMR has 15 power generation projects, of which eight are operational and seven are being built. It also has nine road projects, of which seven are operational.
GMR Infrastructure Ltd had total stand-alone debt of Rs.4,085.46 crore as on 30 September. The group’s consolidated debt was Rs.40,139.68 crore as on 30 September. GMR Infrastructure’s loss widened to Rs.441 crore in the quarter ended December, compared with a loss of Rs.217 crore in the year-ago period and Rs.393 crore in the preceding quarter.
On Tuesday, GMR Group said it had sold a 74% stake in GMR Ulundurpet Expressways Pvt. Ltd to India Infrastructure Fund of IDFC Ltd in a deal that releases capital to the tune of Rs.198.75 crore and reduces debt on its books by Rs.450.67 crore.
Executing a hydropower project is a time-consuming, costly and tedious process. It includes a thorough survey and investigation, preparing a detailed project report, relocation and resettlement of the affected population and infrastructure development.
A consortium comprising GMR Energy Ltd, GMR Infrastructure and Italian-Thai Development Public Co. Ltd (ITD) is developing the 900MW hydropower project on Karnali river on build, own, operate and transfer (BOOT) basis.
While Nepal has emerged as a favourite destination for several Indian hydroelectric power generation firms due to its huge untapped potential, the uncertain political environment has led to delays in execution of many projects.
“The talks are about a partnership wherein EDF may come as a minority investor. It will be less than 51%. GMR will (continue to) be the lead investor in the project,” said the first person quoted above.
EDF and ITD didn’t respond to queries emailed on 28 January and 30 January, respectively. Although Nepal has 83,000MW of hydropower potential, it is facing a shortage. Tapping some of the country’s hydropower potential could help bridge that gap and serve as a source of power for India. Nepal imported 173MW of electricity from India in 2012-13.
Other deals-in-the-making in the Indian power sector include the debt-laden Lanco Infratech Ltd’s attempt to sell its 1,200MW Udupi Power Corp. Ltd in Karnataka and Jaypee Group’s efforts to sell two of its three operating hydroelectric projects to a consortium led by Abu Dhabi National Energy Co. PJSC, known as TAQA (a deal that is nearing completion).
JPMorgan Asset Management invested $150 million in Bhaskar Group’s Diliigent Power Pvt .Ltd in May 2013; Nagarjuna Construction Co. Ltd sold stake in a power plant it is building to Sembcor; and Meenakshi Energy and Infrastructure Holdings Pvt. Ltd offloaded a 74% stake in a 1,000MW coal-fired power project to GDF Suez.
“Notwithstanding the solid long-term demand for energy and transportation infrastructure, infrastructure financing in India has to work its way out of two fundamental problems before credit quality can start to improve significantly,” India Ratings and Research Pvt. Ltd wrote in a 13 February report.
“First, the system has to work itself through numerous excesses of the past including aggressive bidding, weak and inexperienced sponsors, poor project planning, high leverage, weak financial structures and revenue overestimation. Secondly, the constraints imposed by a harsh external environment—slowing economy, rising interest costs and depreciating currency, difficult equity markets and policy uncertainty—have to be overcome,” the report said.
Source : Live Mint