After having topped the private equity (PE) investors’ list earlier, the energy sector saw a 47 per cent drop in investments during the financial year 2008-09.
Total PE investment into the sector stood at $1 billion (around Rs 5,000 crore) last financial year as compared with $1.9 billion (Rs 9,500 crore) in FY08. Industry experts said that this is the right time for these companies to look at other investment options, including strategic investors and government funds, as PE investors are not able to get capital themselves.
According to Arun Natarajan, chief executive officer, Venture Intelligence, a Chennai-based PE research firm, the number of deals in the energy sector dropped to 26 deals in 2008-09 from 35 deals in the previous financial year.
Some of the major investments in 2008-09 include Masdar’s $174-million (Rs 870-crore) investment in the wind turbine manufacturer WinWind in September 2008, IDFC PE and Lehman’s investment of $125 million (around Rs 625 crore) in Konaseema Gas Power in May 2008, an investment by a consortium of IDFC PE, Morgan Stanley, Credit Suisse, Nomura Holdings and others (CDC Group, IDFC) of $100 million (about Rs 500 crore) in Moser Baer Photo Voltaic in September 2008, IDFC PE’s $91-million (around Rs 455-crore) investment in SE Forge and India Infrastructure Fund’s investment of $70 million (around Rs 350 crore) in Essar Power in March 2009.
T Shivaraman, managing director and chief executive officer, Shriram EPC, an integrated design, engineering, procurement, construction and project management services for energy projects, said that one of the main reasons for the fall is the drop in valuations. He said cost has come down by 30-40 per cent as against a year ago. He noted the worst hit in the crisis are mid-level companies.
S Sivakumar, managing director, Argonaut Global Capital, said that this is the right time for these companies to look at other funding options, including strategic investors, Exim banks and other government fundings, which are the best source at this time.
While Shivaraman echoed the same view, he also warned that strategic investors could ask for control in the company they invest in, which will be an issue for a majority of Indian promoters.
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Venture Intelligence’s Natarajan pointed out that, even if the economy grows at just 5-6 per cent, the demand for power in the country is sure to outstrip supply significantly. So, PE investments in this sector will continue to be attractive and will pick up. The successful fund-raising by infrastructure-dedicated funds, such as the SBI-Macquarie fund and the IDFC-Citi fund, indicates that the pace of investments will be sustained.
With energy demands of a 450-million strong middle-class population translating into an impending energy gap of over 30 GW per year, the demand for energy is expected to grow at an annual rate of nearly 6 per cent over the next ten years.