Global private equity firm General Atlantic is close to buying 10% stake in Essar Power (EPL) for around $600 million. EPL plans to head to Dalal Street after the placement. Talks between General Atlantic and EPL are in an advanced stage and a deal is likely soon, sources said.
“EPL, which has a generation capacity of 1,200 mw, is valued at around $6 billion. The company plans to invest $4 billion to set up three power plants with a cumulative capacity of 3,600 mw. The projects will be funded on a 3:1 debt-equity ratio. The fresh funds raised through private equity will be used for the new projects,” said company sources.
When contacted by ET, company officials declined comment on the stake sale and IPO. “Two private equity majors were in the race, but now General Atlantic has moved in,” sources said.
Power generation companies in India enjoy high valuations owing to growing demand and government support to the sector. The Centre wants to add 80,000 mw during the 11th Plan period in view of an alarming deficit of 22,000 mw. Reliance Power, which plans to offer shares to the public mid-January, is valued $23 billion by UBS.
Sterlite Energy and JSW Energy are valued at around $10 billion each. Companies and investors are betting the rising power shortage will only increase the value of firms with large capacities and the ability to scale it up.
The $15-billion General Atlantic, which invested over $250 million in the country in 2007, including $115 million in the National Stock Exchange and $60 million in Thiruvananthapuram-based IBS Software, is steadily increasing its exposure here.
EPL eyes 6,500 mw capacity by 2012
The fund’s Indian portfolio includes Hexaware, Jubilant Organosys, Genpact and Patni Computer. Though its favourite sectors continue to be outsourcing, communications and IT, it is also looking at investing in trade & logistics and financial services, apart from power and infrastructure.
The EPL deal follows a similar stake sale by Adani Power (APL), which sold around 7-8% recently to Europe’s largest publicly-traded buyout and venture capital company 3i Group Plc for $227 million. A few other power companies, such as Sterlite Energy and JSW Energy, are also in the market to raise funds through pre-IPO placements.
Cashing in on the increasing power demand in the country, EPL plans to expand generation capacity to 6,500 mw by 2012, which will entail an investment of Rs 26,000 crore. EPL’s new projects include a 1,200 mw coal-based pithead project at Mahan in Madhya Pradesh, a 1,200 mw coal-fired project in Jharkhand and another coal-fired 1,200 mw project at Jamnagar in Gujarat. It plans to add 1,500 mw through projects in Orissa and Chhattisgarh.
The Indian power sector, which attracts international investors, is expecting investments of Rs 3.2 lakh crore during the 11th Plan. About 60% of the investment is expected from the private sector. Due to growing demand, power projects with fuel linkages fetch attractive valuations. As EPL has developed capabilities in setting up mega power projects, investors are eyeing the company as a potential investment target, said industry analysts.
Source: Economic Times