Strategic Deal

CDPQ set to acquire stake in CLP India

In a significant merger and acquisition (M&A) deal in the power sector, in September 2018, Canadian pension fund manager Caisse de dépôt et placement du Québec (CDPQ) agreed to acquire a 40 per cent stake in renewable energy producer CLP India Private Limited. The transaction will bring in CDPQ as a strategic non-controlling shareholder of CLP India.

The investment by CDPQ highlights the emerging pattern of foreign players exploring the Indian market and is also expected to boost the inflow of foreign investor capital in the Indian renewable energy space. Given the high level of initial capital investment, the lack of access to finance has often been a hurdle in the development of renewable energy-based projects. Pension funds such as CDPQ not only have a large amount of funds but can also deploy them for a longer period.

Background and deal details

The deal, which is a conditional sale and purchase of 40 per cent of the existing shares in CLP India, is valued at Rs 26.4 billion and is subject to the fulfilment of certain conditions, including regulatory approvals. CLP GPEC (Mauritius) Holdings Limited, a wholly owned subsidiary of the Hong Kong-based CLP Holdings Limited, will maintain a majority 60 per cent shareholding in CLP India.

CLP entered the Indian power sector in 2002, with the acquisition of a 655 MW gas-fired power plant located in Gujarat. Today, CLP India has a portfolio of over 3,000 MW, comprising supercritical coal, gas-fired, wind and solar power plants.

Expected synergies from the deal

For CLP India, the transaction is expected to help it expand its business to other segments including transmission and distribution. “CLP India will pursue a faster path of growth to a long-term sustainable business with a larger and more diversified portfolio. CLP India will seek to expand investments in low-carbon-growth areas including renewable energy investments as well as non-generation business opportunities in transmission, distribution and other customer-focused businesses,” the company said in a statement announcing the stake sale. The company has been participating actively in ongoing tenders for the expansion of the Green Energy Corridors project as well as the interstate transmission system.

CDPQ, one of Canada’s biggest public pension funds, is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As of June 2018, CDPQ held CAD 308.3 billion in net assets. The transaction will expand CDPQ’s investments in the Indian power sector and is also in line with its strategy to combat climate change. Under this strategy covering its entire portfolio, CDPQ has set targets and action plans for a constructive contribution as an investor to the transition towards a low-carbon global economy and to seize profitable investment opportunities.

Other recent developments

The M&A deal comes close on the heels of CLP India announcing the signing of a joint venture agreement with Suzlon Energy Limited for the development of 70 MW of solar photovoltaic power projects in Dhule, Maharashtra.

As per the agreement, CLP India will acquire 49 per cent equity stake in two special purpose vehicles (SPVs) – Gale Solarfarms Private Limited and Tornado Solarfarms Private Limited – set up by Suzlon to manage two power projects of 50 MW and 20 MW respectively. The power purchase agreement (PPA) for the offtake of power from the two projects has been signed with the Solar Energy Corporation of India for a period of 25 years at a fixed tariff of Rs 4.115 per unit for the 20 MW project and Rs 3.66 per unit for the 50 MW project. As per the agreement, CLP will acquire stake in the SPVs for cash considerations of Rs 234.9 million and Rs 155.7 million respectively. CLP has the option to acquire the balance 51 per cent stakes in Gale and Tornado from Suzlon after one year of the commercial operation date, as permissible under the PPA, at a value derived as per the then prevailing pricing guidelines, while Suzlon will continue to provide operations and maintenance services. CLP India had made its foray into the solar power segment in 2016 through a similar agreement with Suzlon for its 100 MW project in Veltoor, Telangana.

Conclusion

The deals reinforce CLP India’s plans to strengthen its presence in the renewable energy space as well as diversify into other power segments, with the strategic backing and financial support of its stakeholders. Going ahead, CLP India will actively explore potential M&A options to expand its operations in solar, while staying away from bidding for projects.

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