UK?s Ashmore and PTC India?s move to create a $1-billion power sector corpus has spurred the prospects of more such investments into the fund. This is in the wake of the 100-gw power generation capacity India plans to add during the coming 12th Five-Year Plan, which would entail an equity investment of Rs 1.5 lakh crore.
Ashmore and PTC India are jointly planning to pump in $100 million into the fund. The rest will come from domestic and overseas financial institutions and pension funds. This model could be replicated by other PE ventures too.
Even as debt is available from various domestic and overseas sources to finance this expansion, raising equity remains a serious challenge, especially for private players, as investors have become risk-averse.
Multilateral agencies like World Bank, Asian Development Bank (ADB) and Japan’s Bank for International Cooperation as well as domestic institutions such as Power Finance Corporation and Rural Electrification Corporation provide long-term loans to power projects. In the wake of the global financial meltdown, equity investments from stock markets have dried up. After an initial enthusiasm, the stock markets have lost their appetite for power sector public issues.
If the market response to the recent follow-on public offers of companies like NTPC and REC is anything to go by, it might not be easy for private developers to tap this source for equity fund. Private equity players like Ashmore are well placed to meet this financing gap. By industry estimates, the power sector is facing a funding gap of 40%. Private sector participation is likely to increase from 19% in the 11th Plan to 63% in the 12th Plan. Private projects will also require equity support in a big way.