India Wind-Farm Debt Crisis Lures Buyers Waving Cash

June 12, 2013 by  
Filed under Green Energy News

Ushdev Power Holdings Pvt. plans to
boost wind-power generation capacity in India sevenfold by
acquiring farms from indebted companies selling assets built for
tax breaks.

Closely-held Ushdev Power bought 60 megawatts of projects
from Suzlon Energy Ltd. (SUEL) at less than half the cost of building
new wind farms a year ago as the turbine-maker struggled to
raise cash to pay bondholders. That was the first of 400
megawatts of acquisitions Ushdev plans over the next 15 months,
which would make it India’s second-biggest owner of wind assets
based on current holdings, according to data compiled by

“Our strength is that we can sit across the table and say,
‘I’m here, I have the money, I will close the deal today,’”
Arvind Prasad, managing director of Ushdev Power, said in an
interview in Mumbai. “These sellers require the cash now.”

India’s fragmented wind industry is ripe for mergers and
acquisitions. Goldman Sachs Group Inc. and Morgan Stanley (MS) have
led about $1.1 billion of private-equity buyouts, project and
company acquisitions in the industry since 2010, said Ashish Sethia, Bloomberg New Energy Finance’s India country manager.
Property developer DLF Ltd. (DLFU) and truck maker Ashok Leyland Ltd.
are among those selling their wind portfolios.

Ushdev Power, based in Mumbai, paid 1.7 billion rupees ($29
million) to Suzlon, including 680 million rupees for the assets
and 1 billion rupees in assumed debt. That comes to about 28
million rupees a megawatt, compared with about 65 million rupees
for a new farm, Prasad said. Suzlon said in an e-mail yesterday
it may earn an additional 250 million rupees in fees from the

‘Generate Cash’

“The primary drive toward selling wind assets has been to
generate cash and exit from non-core areas,” said Sanjay
Chakrabarti, a Mumbai-based Ernst Young LLP partner advising
funds considering acquisitions to enter the Indian wind market.
“In several cases the position has been aggravated due to the
owner of the wind turbines being cash strapped.”

India became the world’s third-biggest wind turbine market
in 2010, after China and the U.S., partly as a federal incentive
spurred companies without experience to invest in thousands of
farms to gain tax depreciation benefits. DLF, India’s biggest
and most-indebted property company, agreed to sell 217 megawatts
of projects for 5.23 billion rupees since January after running
up debt to fund expansion into wind farms, hotels and export-processing zones.

Ashok Leyland, the nation’s second-biggest truck maker, and
infrastructure developer Lanco Infratech Ltd. (LANCI) have said they’re
seeking to sell assets. KS Oils Ltd. (KSO), a canola oil processor
restructuring its debt, also put 92 turbines up for sale,
according to an advertisement published last year by SBI Capital
Markets, its main lender. KS Oils Chairman Ramesh Garg didn’t
respond to a call and text message to his mobile phone and the
company didn’t respond to an e-mail requesting comment.

Less Risk

Wind utilities, such as Goldman Sachs-backed ReNew Wind
Power Pvt., Morgan Stanley-backed Continuum Wind Energy Pte and
IDFC Ltd. (IDFC)’s Green Infra Ltd. unit are seeking to amass gigawatt-scale portfolios to reduce generation costs, in some cases to
lower than those for new coal-based power projects. Green Infra
is looking to buy operating farms because “there are excellent
opportunities in the market for companies with the capital,”
said Raja Parthasarathy, a partner at IDFC Alternatives.

“The risks of an operating asset are much, much less as
compared to a new project,” Prasad said. “Performance of the
project is already established.” At the right structure and
price, returns are as much as 18 percent to 20 percent, he said.

Minimum Conditions

Ushdev looks exclusively at farms three to four years old,
with a minimum capacity of 20 megawatts, which typically cost 35
million to 40 million rupees per megawatt, he said.

Even then, credibility of data recorded by current projects
and the challenge of managing scattered assets presents risks.

“The purchase of operational assets is attractive,” said
BNEF’s Sethia. “Nevertheless, differences on expected
valuations, poor data quality and documentation, and
questionable credibility of the seller could prove stumbling
blocks in a transaction.”

Of the deals Ernst Young has worked on, projects have had
limited potential to boost profit through technical improvement,
Chakrabarti said. The “deal sweetener” is when a new buyer can
be arranged who will pay more for the power generated, he said.

Ushdev Power agreed to pay Suzlon 250 million rupees more
in fees if the turbine maker managed to cancel the farms’ power
purchase agreements with cash-strapped state buyers, Prasad
said. That would allow Ushdev to sell electricity direct to
industrial companies that pay on time and at higher rates.

That part of the contract “is currently in process,’
Suzlon said in an e-mail response to questions. The company is
trying to raise $400 million in asset sales after India’s
biggest convertible-bond default in October. The Pune-based
turbine maker declined to identify whether it has more wind
farms for sale.

Ushdev Power plans to sell shares in an initial public
offering once it has a portfolio of about 500 megawatts by the
end of 2014, Prasad said. It may seek to buy 28 megawatts from
Ushdev International Ltd. (UTF), which plans to spin off its wind
unit. Both companies belong to the Mumbai-based Ushdev Group and
have no cross holdings, he said.

To contact the reporter on this story:
Natalie Obiko Pearson in Mumbai at

To contact the editor responsible for this story:
Reed Landberg at

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