Twist in race for Mahindra Susten; Brookfield Asset Management in talks to buy majority stake in company

If the deal fructifies, it would mark the second one struck in the solar power segment between Brookfield and an Indian conglomerate. The Canadian investment firm had acquired Emami Power last year.

Anand Mahindra-led Mahindra Group has initiated talks with Canadian investment giant Brookfield Asset Management to sell a majority stake in its clean energy portfolio firm Mahindra Susten in one of the most high-profile deals in the renewable energy segment in recent times, multiples sources with knowledge of the matter told Moneycontrol.

If it fructifies, the deal would mark the second acquisition of a solar firm from a domestic conglomerate by Brookfield. Earlier, it had purchased Emami Power from the Kolkata based group, a story first reported by Moneycontrol on June 6, 2020.

“A term sheet has been signed recently between both the parties and due diligence has begun on the proposed deal,” one of the persons cited above said, adding that there is no certainty that the ongoing negotiations will result in an eventual transaction.

“Rather than asset sales or minority stake deals, Brookfield Asset Management is more comfortable with majority transactions at the hold co level. Discussions are on,” a second person told Moneycontrol.

“Earlier plans of selling around 600 MW of assets of Mahindra Susten to a suitable suitor are not being pursued actively for the time being. However, they may be re-visited later if required. Brookfield has edged ahead in the race for now,” a third person told Moneycontrol.

According to reports, the likes of NIIF (National Infrastructure Investment Fund), KKR and CPPIB had expressed interest in the assets of Mahindra Susten and these reports had pegged the deal valuation at around $500 million.

“Mahindra Susten has a good quality, well-built platform and is an attractive target as it possesses all three capabilities i.e assets, EPC (engineering, procurement and construction) and O&M (operations and maintenance),” added a fourth person.

When it comes to the deal rationale for Brookfield Asset Management, this fourth person told Moneycontrol that the Canadian investment firm “has been focussing on the renewable energy segment in other jurisdictions and is keen to add capability in India, develop the Mahindra Susten platform and then take it global.”

All the four people spoke to Moneycontrol on condition of anonymity. Both Mahindra Susten and Brookfield Asset Management declined to comment in response to an email query from Moneycontrol.

THE MAHINDRA STRATEGY

In an interview to CNBC TV-18 dated February 8, 2021, Anish Shah, who takes over from Pawan Goenka as the new MD and CEO of the Mahindra Group in April, said that the Mahindra Group would continue looking for partners to invest in the EPC (Engineering, Procurement and Construction) and IPP (Independent Power Producer) aspects of Mahindra Susten as they require very high investment, but will invest to grow significantly in the solar tech business.

The auto to information technology conglomerate is looking to drive EPS (earnings per share) growth, RoE (return on equity) and free cash flows in FY 22 under Shah post an internal rejig exercise involving external businesses and other units.

The latest Q3 results presentation of Mahindra & Mahindra classifies Mahindra Susten as a “growth gem” with focus areas as “partnerships for EPC/IPP and scale solar tech.’

According to the presentation, as part of M&M’s overall capital allocation strategy, it has clubbed portfolio companies into: a) entities with clear path to ROE, b) quantifiable strategic impact, and c) unclear path to profitability; exit. To be sure, Mahindra Susten is not classified currently under the third category.

A CLOSER LOOK AT MAHINDRA SUSTEN

Incorporated in 2010, Mahindra Susten has a portfolio of 1.5 GW and has four different business verticals. The solar IPP division is involved in strategic investment in solar power production and development of renewable energy assets in India. Through its utility-scale solar business, it undertakes turnkey EPC projects around the globe across the life of the plant, from solar panel installation, sit survey and feasibility report to the lifetime maintenance of the plan.

The distributed solar rooftop systems at Mahindra Susten include solutions for all roof types, be it commercial, car port or residential installation of solar panels systems. It has marquee customers like Soft Bank, Engie, First Solar and Renew.

BROOKFIELD’S RENEWABLE ENERGY STRATEGY

Brookfield Asset Management backs one of the world’s largest pure-play renewable power platforms. Its portfolio consists of hydroelectric, wind, solar, and storage assets spread across North America, South America, Europe, and Asia. The combined portfolio has a size of over 19 GW of installed capacity with an 18 GW development pipeline.

As indicated earlier, Brookfield acquired Emami Power last year. The Emami Group had 11 MW of solar power projects in Karnataka, 10 MW at Charanka Solar Park, Gujarat, 3.3 MW of solar power project in the Ramanathapuram district of Tamil Nadu, and a 22.5 MW solar power project in the Haridwar district of Uttarakhand.

Earlier, the Government of India had set a target of installing 175 GW of renewable energy capacity by the year 2022, which included 100 GW from solar, 60 GW from wind, 10 GW from bio-power and 5 GW from small hydro-power.

Later in September 2019, at the United Nations Climate Action Summit, Prime Minister Narendra Modi announced an increase in the renewable energy target to 450 GW by 2030 from 175 GW by 2022.

Source: moneycontrol