Small BusinessPower gets a big chunk of private equity pie
India’s power sector continues to attract private equity (PE) players. According to industry sources, more than 51 per cent PE investments in India between January 2008 and November 2009 went into the power sector. The value of these 15 investments is estimated at $ 751.2 million (Rs 3,600 crore).
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In addition, power companies raised around Rs 23,000 crore from the capital markets between February 2008 and November 2009. And, initial public offfers exceeding Rs 8,000 crore are expected in the coming months.
According to a study by industry body Assocham and Ernst & Young, the infrastructure sector received around $1,455.9 million (Rs 7,000 crore) in 35 deals in the period.
Assocham President Swati Piramal said the estimated equity needed by the private sector for the remaining period of the 11th Plan and the 12th Plan is Rs 68,000 crore.
Historically, foreign direct investment (FDI) as a percentage of total equity funding has been 12-15 per cent. Hence, assuming a rate of 15 per cent, the total FDI required till the end of the 12th Plan, that is, financial year 2017, would be in the range of Rs 10,000 crore, said Piramal.
In some recently-concluded deals, Hyderabad-based Ind-Barath Power Infra Ltd raised about $100 million from Sequoia Capital India, Bessemer Venture Partners and Citi Venture Capital International. Details of around $35 million PE investments in the power sector could not be obtained, said the report.
The study said bank credit continued to be the main source of debt for power projects. It increased from Rs 12,659 crore in 2007-08 to around Rs 28,0000 crore in financial year 2009, a compounded annual growth rate of over 48 per cent.
In 2009, qualified institutional placement (QIP) has emerged as a popular method of raising funds as QIPs allow issuers to raise funds with quickly with minimal regulatory hurdles. At the same time, it allows investors the flexibility to liquidate their investments as there is no lock-in period.
The study said Indian infrastructure companies raised more than Rs 6,000 crore through QIPs in 2009. L&T alone raised Rs 1,872 crore in October 2009 and GVK Power & Infrastructure, Lanco Infratech and Punj Lloyd raised around Rs 700 crore each. PTC concluded a QIP placement of Rs 500 crore in May 2009. Recently, KSK Energy Ventures Ltd raised more than Rs 515 crore.
In comparison to all other sources of equity for power projects, the public markets continue to remain the largest contributor. Reliance Power launched the IPO activity in the sector by mopping up Rs 11,700 crore in February 2008.
Following the slowdown in the equity markets, developers were wary of pursuing this route. Financial year 2008-2009 saw only one IPO, that of KSK Energy Ventures, in July 2008.
With the equity markets recovering since February 2009, a number of companies have flocked to them to raise equity. Adani Power raised Rs 3,000 crore in August 2009, NHPC raised around Rs 6,000 crore in September 2009, and Indiabulls Power raised Rs 1,529 crore in October 2009.