In a recent development, Sterlite Power Transmission Limited (SPTL), a leading power transmission developer and global provider of products and solutions in India and Brazil, achieved a significant milestone, receiving approval from its stakeholders to demerge its business into two business entities.
Following this, the demerged transmission infrastructure business will be consolidated under Sterlite Grid 5 Limited (SGL5), while the Global Products and Specialized EPC Services (GPS) business will continue to remain under SPTL. According to Sterlite, this strategic division will enable each entity to refine its focus and tailor its strategies to attract specific pools of capital aligned with its unique requirements. Each entity will pursue independent growth trajectories with enhanced focus and agility.
Details of the demerger
The approval was granted by equity shareholders, secured creditors, unsecured creditors and non-fund-based lenders for the demerger of SPTL’s transmission business. Notably, the demerger proposal was unanimously approved by secured creditors, alongside receiving 99.26 per cent endorsement from unsecured creditors, 99.99 per cent from equity shareholders present and voting, and a full 100 per cent from non-fund-based lenders. This underscores the company’s potential to drive value creation post-demerger.
As per the company, the infrastructure business (SGL5), with its emphasis on long-term projects and reliable cash flows, is poised to appeal to patient investors seeking stable returns. In contrast, the GPS business, characterised by its higher growth potential and attractiveness for pre-initial public offering investments, is expected to draw interest from investors seeking greater returns.
The forthcoming demerger, executed through a National Company Law Tribunal (NCLT) scheme of arrangement, will ensure a seamless transition for investors. Upon completion, all SPTL shareholders will possess identical shareholdings in both SGL5 and GPS under SPTL, safeguarding continuity and stability for stakeholders amidst the restructuring process.
Opportunities
The demerger of STPL’s transmission business is anticipated to yield significant outcomes. The GPS business had cumulative order wins worth Rs 70 billion in 2023-24, marking a remarkable 35 per cent year-on-year increase compared to the previous fiscal year. In the fourth quarter of 2023-24, the company secured a substantial set of orders to supply conductors to green energy power transmission projects in Rajasthan, including the Fatehgarh-Bhadla transmission line project. Together, these projects will enable the evacuation of 20 GW of renewable energy from Rajasthan to the national grid.
Meanwhile, SGL5 will capitalise on significant growth opportunities in the transmission infrastructure sector. With a substantial pipeline of projects amounting to Rs 1,000 billion, encompassing large-scale high voltage direct current and green energy corridor projects, the company is positioned for substantial expansion. This pipeline, coupled with rapid development at both interstate and intra-state levels, is anticipated to bolster the evacuation of renewable energy projects currently under development, further supporting the transition towards cleaner energy sources. Globally, the power transmission network is projected to double within the next eight years to meet aggressive targets for renewable energy additions. This surge in demand for power products is expected to persist, driven by global capital expenditure directed towards renewable capacity expansions, transmission and distribution infrastructure enhancements, benefits from the “China+1” strategy and favourable tariff structures in the US.
Other developments
In May 2024, SPTL achieved financial closure for its Neemrana II Kotputli Transmission Limited (NKTL) project. It secured funds totalling Rs 13.73 billion from Power Finance Corporation Limited. SPTL acquired the NKTL special purpose vehicle in November 2023 to execute the green energy corridor on a build, own-, operate- and transfer- basis for a period of 35 years. The project encompasses the development of two critical components: a state-of-the-art 6,000 MVA, 765/400kV substation at Neemrana and a 400 kV transmission line network spanning approximately 250 km. Earlier, in February 2024, the company had achieved financial closure for its Beawar Transmission Limited project. It had secured funds totalling Rs 24 billion from REC Power Development and Consultancy Limited. Also in February 2024, SPTL had announced the refinancing of the Lakadia-Vadodara Transmission Limited project loan, just 12 months after the project became fully operational in January 2023.
Conclusion
The demerger was announced in November 2023 and the company expects it to conclude by the second quarter of 2024-25 following approval by the NCLT. SPTL’s demerger marks a pivotal moment in its growth trajectory and is expected to enhance focus, agility and tailored strategies for both entities, ensuring they attract the right pool of investors.