The Indian power sector is seeing significant traction with M&A activity during the first five months of 2016.
The deal volume and disclosed deal value in the sector stood at 17 deals and $1.6 billion respectively compared to 15 deals and $601 million for the corresponding period last year, says Kuljit Singh, Transactions Partner & National Power & Utilities Leader, EY India.
“We expect the strong transactions trend to continue with both domestic and foreign players looking to expand their portfolios. Deal activity in the renewable segment is expected to gain momentum as several large operational portfolios come up for sale/private investment and a large number of greenfield assets are opened for bids by the Government,” he said.
Recently, the power sector in India has attracted increased attention from the government, anchored on progressive policy changes. Within the power sector, the renewable energy segment has steadily gained prominence owing to low availability of domestic fuel and increased volatility in the international coal prices, he added.
However, after the coal field auction in 2015 by the government, the availability of domestic coal has started to improve slowly, which has brought much needed relief to the thermal power segment.
Singh further added that the government’s other initiative such as the Ujwal DISCOM Assurance Yojana (UDAY), targeted at the revival and financial turnaround of transmission and distribution companies (discoms), has also contributed to building a positive investor sentiment.
Investors target renewable energy assets buoyed by attractive returns
The renewable energy segment has continued to dominate the power sector. The segment recorded 11 deals (accounting for 65% of the power sector deal volume) till May 2016, with a total disclosed deal value of $177 million. Both domestic and overseas power and utilities companies have increased their presence in the renewable segment by acquiring clean energy portfolios in India — especially across solar and wind energy.
The renewables segment saw six domestic transactions (with a disclosed deal value of US$147 million), with the acquirers focused on strengthening their position in the renewables space. A key transaction during the period was the acquisition of undisclosed equity stake in Essel Green Energy (the solar business arm of the Essel Group) by Piramal Enterprises and APG Asset Management, for $132 million.