According to The Economic Times, ReNew Power is in talks to sell wind and solar assets to GAIL for Rs 3,000 crore. Both sides have engaged advisers to take the discussions forward.
The green energy supplier has carved out a group of wind and solar assets in the north and central India for sale. These have a combined capacity to generate 700 MW of power. ReNew Power has a total generation capacity of 8.65 gigawatts (GW).
“They have arrived at a high-level understanding of the deal. The final closure will depend on satisfactory due diligence and agreement on valuation,” an executive aware of the discussions said.
If the talks were to progress into a transaction, this would be the second tranche of an asset sale by ReNew Power after it recently divested some of its power assets in Karnataka to UK government-backed Ayana Renewable for ₹1,600 crore as part of its ongoing monetization drive to deleverage its balance sheet.
GAIL, which was formerly known as Gas Authority of India Ltd, has been targeting renewable energy assets as part of a diversification strategy.
“As a part of growth strategy, GAIL is continuously looking for business opportunities including renewables through M&A and/or develop RE (renewable energy) plants through bidding route for both organic as well as inorganic growth,” a spokesperson for GAIL said. “However, GAIL is unable to provide comments on any specific opportunity due to confidentiality of issues.”
The state-owned company is the largest transporter of gas in the country with a network of 12,426 km of gas pipelines. The company transports 70% of all gas shipped domestically.
ReNew has been looking at asset sales as part of a strategy to ‘churn capital’, as per sources close to the company. The company will sell legacy assets and realize gains from these older investments with an objective to redeploy the proceeds into new projects, these sources said.
Industry observers also pointed that cash flows of state-owned power distribution companies (discoms) have been adversely impacted due to the pandemic as power demand in the commercial and industrial segment has fallen and recoveries from customers have been hurt due to overall stress.
This has led to increased suffering for power generation companies like ReNew Power, which depend on timely payments from the discoms.
Discoms’ outstanding dues to power generation companies rose 28% year-on-year in September to Rs 1,38,749 crore, according to power ministry data. This was despite the government announcing a Rs 90,000 crore liquidity infusion package for the electricity distribution companies that have been dispensed through Power Finance Corporation and REC.
ReNew’s debt position is also an area of focus for the company, according to sources. The company has a debt burden of Rs 24,000 crore. Almost half of its revenues of Rs 4,790 crore in the financial year 2018-19 went towards meeting finance costs on loans, the company’s balance sheet shows.
However, the company is well capitalized with over Rs 7,000 crore of total equity. It also reported a Rs 100 crore profit for the financial year 2018-19.
“Your company will be selectively making investments in the renewable energy domain given the future growth potential and also to partner with government in meeting India’s INDC (Intended Nationally Determined Contributions) commitments on climate change”, GAIL said in its latest annual report published on its website.
GAIL is cash-rich and has low debt levels. It has reserves of Rs 40,000 crore. It reported sales of Rs 74,000 crore in the financial year 2019-20 and profits of nearly Rs 10,000 crore.
This story has not been edited by BU and is published from a syndicated feed.