In a significant milestone, the India Grid Trust (IndiGrid) has acquired its first set of solar power assets, effectively diversifying its portfolio and also marking the first renewable energy acquisition by an infrastructure investment trust (InvIT) in the country. IndiGrid has completed 100 per cent acquisition of two solar energy assets, with a cumulative capacity of 100 MW, from Fotowatio Renewable Ventures (FRV), a leading global renewable development company with a presence in markets such as Europe, Australia, the Middle East, Africa, Asia and Latin America. The transaction has been finalised at an enterprise value of Rs 6.6 billion.
In an official release, Harsh Shah, chief executive officer, IndiGrid, remarked, “We are excited to diversify our portfolio and add the first set of solar assets. This acquisition is DPU (distribution per unit) accretive and would result in a healthy addition to our net distributable cash flow. While power transmission assets remain at the core of IndiGrid’s growth strategy, we believe such attractive opportunities to acquire good quality solar projects tie in well with our strategy of providing predictable cash flows to our investors and reinforce our commitment to be a socially responsible organisation.” The acquisition will add about Rs 250 million of net distributable cash flow per year and increase IndiGrid’s assets under management to over Rs 210 billion.
IndiGrid and FRV Solar Holdings XI B.V. had entered into a securities purchase agreement in December 2020, for the acquisition of 100 per cent shareholding and management control of one or more tranches in FRV Andhra Pradesh Solar Farm I (FRV I) and FRV India Solar Park II (FRV II).
The 100 MW assets are fully operational and located in the 400 MW Ananthapuramu Solar Park in Andhra Pradesh. FRV I was incorporated on July 14, 2016 and FRV II on July 9, 2016. The two projects comprise and operate a 50 MW (AC) solar power plant each. FRV I was commissioned in July 2018, while FRV II was commissioned in January 2019. Both the assets entered into power purchase agreements (PPAs) with the Solar Energy Corporation of India (SECI) on October 5, 2016 for a tenor of 25 years at a fixed tariff. The fixed tariff structure, backed by a strong counterparty such as SECI, limits the operational risks associated with the projects. Further, the projects have an impressive track record of generation and revenue collection for over two years. During 2019-20, FRV I and II generated a total revenue of Rs 470 million and Rs 500 million respectively
The acquisition has been funded through a combination of debt, internal accruals and the recent rights issue. Post the acquisition, the net debt/asset under management stands at around 58 per cent, providing adequate headroom for growth against the 70 per cent leverage threshold specified in the Securities and Exchange Board of India’s InvIT Regulations.
Cyril Amarchand Mangaldas, PricewaterCoopers and Mahindra Teqo advised IndiGrid on this transaction. Greenstone Advisors acted as the sell-side adviser on the transaction, representing FRV.
With this acquisition, IndiGrid’s asset portfolio will now consist of 14 diversified power projects including 40 transmission lines (about 7,570 ckt. km), 11 substations (about 13,550 MVA capacity) and 100 MW of solar power plants across 18 states and one union territory.
In the previous fiscal, IndiGrid acquired various power transmission projects. In August 2020, it completed the acquisition of Gurgaon Palwal Transmission Limited from Sterlite Power at an enterprise value of Rs 10.8 billion as part of the framework agreement. It also acquired Jhajjar KT Transco Private Limited from Kalpataru Power Transmission Limited and Techno Electric & Engineering Company Limited at an enterprise value of Rs 3.10 billion. In January 2021, IndiGrid completed the acquisition of its first cost-plus asset, Parbati Koldam Transmission Limited, from Reliance Infrastructure Limited, held under a joint venture with Power Grid Corporation of India Limited (26 per cent stake). Most recently, in March 2021, it completed one of the largest transmission asset deals in India by acquiring NER-II Transmission Limited from Sterlite Power for Rs 46.25 billion.
The road ahead
The recent transaction is in line with IndiGrid’s plan to acquire solar projects with long-term PPAs, an operational track record and financially strong off-takers. The assets have a long contract life and guarantee low-risk cash flows, and therefore go well with IndiGrid’s transmission portfolio in terms of synergies on the operational and regulatory fronts. Going forward, IndiGrid is expected to continue its acquisition spree of high quality renewable energy and transmission assets.