M&A value in power sector up 166% (Jan-May)

New Delhi, 27 June, 2016

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The Indian power sector is seeing significant traction with M&A activity during the first five months of the calendar year (January-May 2016). The deal volume and disclosed deal value in the  sector stood at 17 deals and US$1.6 billion respectively compared to 15 deals and US$601 million for the corresponding  period last year, says an analysis by EY, the leading global professional services organization.

Commenting on the sector outlook, Kuljit Singh, Transactions Partner & National Power & Utilities Leader, EY India, shared “We expect the strong transactions trend to continue with both domestic and foreign players looking to expand their portfolios. Deal activity in the renewable segment is expected to gain momentum as several large operational portfolios come up for sale/private investment and a large number of greenfield assets are opened for bids by the Government.”

Recently, the power sector in India has attracted increased attention from the government, anchored on progressive policy changes. Within the power sector, the renewable energy segment has steadily gained prominence owing to low availability of domestic fuel and increased volatility in the international coal prices. However, after the coal field auction in 2015 by the government, the availability of domestic coal has started to improve slowly, which has brought much needed relief to the thermal power segment. In addition, the government’s other initiative such as the Ujwal DISCOM Assurance Yojana (UDAY), targeted at the revival and financial turnaround of transmission and distribution companies (discoms), has also contributed to building a positive investor sentiment.

Investors target renewable energy assets buoyed by attractive returns: The renewable energy segment has continued to dominate the power sector. The segment recorded 11 deals (accounting for 65% of the power sector deal volume) till May 2016, with a total disclosed deal value of US$177 million. Both domestic and overseas power and utilities companies have increased their presence in the renewable segment by acquiring clean energy portfolios in India — especially across solar and wind energy.

The renewables segment saw six domestic transactions (with a disclosed deal value of US$147 million), with the acquirers focused on strengthening their position in the renewables space. A key transaction during the period was the acquisition of undisclosed equity stake in Essel Green Energy (the solar business arm of the Essel Group) by Piramal Enterprises and APG Asset Management, for US$132 million.

On the inbound front, the segment witnessed five transactions with a disclosed deal value of US$30 million. Prominent examples include EDF Energy Nouvelles, (a France-based clean power production company) acquiring a 50% stake in SITAC RE Private Limited (Delhi-based renewable energy company) by for an undisclosed amount. Similarly, Ahana renewables, a US-based renewable player marked its entry into India’s growing renewable power market by acquiring a 100% stake in Armstrong Energy Global Limited’s (a Hyderabad-based renewable energy company) solar power development business for an undisclosed amount.

Improving domestic coal availability brings back deal activity in the thermal power segment: In the thermal power segment, five transactions were recorded in the first five months of 2016, with a disclosed deal value of US$1.4 billion as compared to three deals in the same period last year. One of the key deals in this space was an announced acquisition of Jindal Steel and Power Limited’s power plant in Chhattisgarh by JSW Energy Limited for US$977 million. Through this deal JSW will add 1,000 MW of operating capacity. This is also the largest deal in the power sector during the first five months of 2016.

“Improving fuel linkages for the thermal power sector is expected to garner investor attention in this space in the very few good quality thermal assets. At the same time, burgeoning debt level would also compel the not so good thermal power producers to bring increased number of distressed assets to market this year”, Kuljit Singh, Transactions Partner & National Power & Utilities Leader, EY India added.

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Notes to Editors

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