Thai energy giant PTT in talks with Goldman for stake in ReNew, could invest $500 million
MUMBAI: Thailand’s state-owned energy giant PTT Group, also the country’s biggest conglomerate, is in talks with Goldman Sachs Group to buy a stake in ReNew Power, underscoring the rising interest of Southeast Asian oil and gas companies in green ventures in the region.
The transaction could lead to the Wall Street investment bank selling at least half its stake in the renewable energy company. The final contours are expected to be finalised in the coming weeks as talks progress, said multiple people aware of the development.
PTT is conducting due diligence and has indicated that it’s open to investing a minimum $500 million at a valuation of $2.2 billion, about half of what the company sought two years back. One of the persons said PTT may end up as the largest shareholder after the transaction, which will see some primary capital infusion as well.
EY is advising the Thai company.
Goldman looking to unlock value
Goldman Sachs, the largest shareholder of ReNew with a 48% stake, has been looking to lower its holding and unlock value for some time after the company was forced to shelve its IPO plans in mid-2018 at a $4 billion valuation.
Goldman had backed first-generation entrepreneur Sumant Sinha to create a green energy platform in 2011 with a $200 million commitment. Since then, several other high-profile investors have come on board. CPPIB and Abu Dhabi’s sovereign wealth fund Abu Dhabi Investment Authority each own 16%; Japan’s gas and utilities major JERA has an 8% shareholding while other small financial investors such as Global Environmental Fund control 3%. Sinha and his senior employees own the rest.
Goldman and ReNew declined to comment. PTT didn’t respond to queries.
“The discussions are being led by Goldman’s teams in London and Hong Kong. They have been talking for months to monetise their investment as the life of the original fund that had invested got over. With traditional oil and gas companies diversifying into environment-friendly investment opportunities for their ESG (environmental, social and governance) compliance you will see more of this trend,” said an executive involved with the discussions.
Malaysia’s state-owned Petronas has been in active negotiations with Tata Power to co-invest in its clean energy investment trust (InvIT), ET reported on June 5.
Other options
Earlier in the year, Goldman had engaged with Brookfield to thrash out a deal but talks floundered over price, said the sources cited above. Subsequently, CPPIB was approached for buying an additional 24% stake. Those discussions, stalled for now, may also get revived.
The company has also been finding it strategically difficult to raise primary capital as that would have set a new valuation benchmark, said people in the know. CPPIB made its investment at $2.8 billion valuation.
There is no guarantee that these discussions will lead to a transaction, said the officials cited above.
ReNew is among the top two independent power producers in the country with about 10 GWof operational and under construction wind and solar capacity. The majority of assets – 96% of group capacity – have power purchase agreements (PPAs) with tenors of around 20-25 years. Industry players however say, with a total debt of Rs 32,487 crore, the company has been facing cash flow pressures after it borrowed heavily to grow through acquisitions such as that of Ostro ahead of the IPO.
However, analysts said that with Rs 4,440 crore available as cash and cash equivalents and repayment obligations of just Rs 2,700 core in the next 12 months, the company has adequate liquidity cover.
Industry players however say, with a total debt of Rs 32,487 crore the company has been facing severe cash flow pressures after it borrowed heavily to grow through acquisitions ahead of the IPO. Its acquisition of Ostro for Rs 10, 800 crore ($1.66 billion) in 2018 was the largest in the sector. But with a failed IPO, fresh equity funding became difficult.
Additionally, close to 2GW of its projects located in states like Andhra Pradesh, Telengana, Rajasthan, Tamil Nadu, Maharastra are facing delayed payments from state electricity boards or locked in litigation over sanctity of the contracts. This has forced the company to sell assets, seek partnerships to develerage its balance sheet. In January, it raised $450 million through a dollar bond issue, to refinance existing borrowings and for future capital expenditure.
However, analysts at Fitch feel with readily available cash and cash equivalents of around Rs 4440 crore ($600 million) and repayment obligations of only Rs 2700 core in the next 12 months, the company has adequate liquidity cover.
“Significantly higher PLF reduction or increase in receivables could lower the liquidity buffer, as we expect the company to generate negative free cash flow in the near to medium term due to ongoing capacity additions,” wrote analyst Girish Madan last month. “We expect the pace of organic growth to slow.”
The company’s FY2020 financials are not published, as yet; but it is estimated that ReNew would clock Rs 5078.4 crore in gross revenues and Rs 4398.4 crore EBITDA.
Diversified PTT Group with business interests in oil and gas exploration, petrochemicals, fuel and coffee retailing pivoted toward renewables after clean energy arm Global Power Synergy Public Company (GPSPC) spent $4.2 billion last year buying electricity producer Glow Energy Plc which generates most of its power from gas and coal from Engie.
GPSPC that is separately listed and was formed by merging several of PTT’s power utility arms in 2013, also bought Brookfield Renewable Partners’ Thailand-based solar energy business for $100 million earlier this year. It also announced plans to develop a blockchain-based renewables marketplace in collaboration with an energy blockchain non profit that was scheduled to be launched this May.
Source: economictimes.indiatimes
