With a growing electricity demand, the thrust towards net zero and immense resource potential, India has been seen as a go-to destination for State-Owned Investors seeking long-term growth in their infrastructure portfolios through investment in renewables. Yet, the challenges facing the sector were highlighted this week when differences over valuations and conditions scuppered the sale of part of SoftBank’s stake in an Indian solar power producer to Canada’s biggest public pension fund, CPP Investments.
SoftBank was looking to sell its 80% stake in SB Energy, which has a 7.7GW renewables generating capacity, for US$525 million. Bharti Enterprises owns the remaining 20%. According to media reports, the Japanese bank has also been in negotiations with Brookfield Asset Management and Abu Dhabi’s sovereign wealth fund Mubadala. Yet, CPP Investments showed some understandable wariness about exposure to a sector that is beset with debt problems and project delays.
CPP had sought condition precedents that included meeting project commissioning deadlines, securing new businesses, bond issuance, and SoftBank bearing any future liquidated damages liability for acquiring this stake, according to Indian financial news website The Mint.
Global SWF research highlights the problem of outstanding payments to solar power generation companies (gencos) by cash-strapped distribution companies (discoms), warning it would erode foreign investor confidence in the sector and potentially hit the earnings of foreign state-owned investors. Some projects have already or are on the verge of becoming non-performing assets, according to some Indian commentators. CPP-backed ReNew Power has been among the worst affected by non-payment – a major motivator to seek guarantees in the SB Energy deal.
Any dent in investor confidence undermines India’s efforts towards securing capital for electricity infrastructure. Growth in capacity has tended to lag behind demand growth, leading to load-shedding blackouts at peak times — a curse for the country’s manufacturing base as well as a population that aspires to enjoy the comforts of a developed economy.
India’s independent solar and wind power generators have been major beneficiaries of investment in rapid expansion of electricity generation, drawing around US$4 billion from ADIA, GIC, CPP and CDPQ in some of India’s leading renewable energy producers. India’s emerging green economy will require additional investments of US$330 billion between 2020-30, according to the government. India has set a target of achieving a 450GW renewable energy capacity by 2030, up from around 90GW presently with around 50GW capacity under execution and another 27GW tendered.
The deal’s collapse followed months of negotiations staged by the Japanese investment bank to divest from SB Energy with the Canadian fund seeking to extract guarantees, perhaps mindful of the challenges of India’s reputation for lengthy project delays and unexpected costs.
Conscious of both rewards and risks of investment in India, CPP Investments is seeking partnerships and investments in funds to enable it to share risk and intelligence with experienced market players and choose assets that best meet its risk/reward profile. The Canadian fund says that altogether it has invested C$12 billion (US$9 billion) in India and “the country is core to our global, long-term investment strategy.”
This month CPP announced plans to increase its stake in IndInfravit, a road concession portfolio, from 27.9% to 43.8% at a cost of more than INR10 billion (US$142 million). Last month, it was one of the top anchor investors in PowerGrid Infrastructure Investment Trust (InvIT) public issue, committing nearly INR8 billion (US$109 million). In March, CPP invested INR15 billion (US$210 million) in a joint venture with RMZ, one of the largest privately owned real estate developers in India, to develop and hold commercial office space in Chennai and Hyderabad.
