Sembcorp buys into Indian power project for $175m
SEMBCORP Industries has agreed to acquire 45 per cent of India's NCC Power Projects (NCCPP) for 8.48 billion rupees (S$175 million), and will ink further agreements to take up another 20 per cent to make up a majority stake.
Potential "substantial synergies" drove the investment, Sembcorp said yesterday. NCCPP is currently building a 1,320-megawatt coal-fired power plant along the coast of Nellore in Andhra Pradesh, adjacent to Sembcorp's first power plant investment in India, Thermal Powertech Corporation India (TPCIL).
The proximity of the two plants will enable operational synergies, such as the use of common coal importation and logistics infrastructure. Both plants will also be run by the same Sembcorp management team in Nellore.
The acquisition doubles Sembcorp's power generation capacity in India and boosts its overall power capacity by 1.2 gigawatts from 2014 to 2016 when both plants will become ready, said Macquarie Equities Research analyst Somesh Kumar Agarwal.
The remaining 55 per cent of NCCPP remains jointly owned by Indian conglomerate NCC Ltd and Gayatri Energy Ventures, Semb-corp's project partner for the TPCIL plant.
Sembcorp said it had to obtain formal approval from the Indian authorities that the government's allocation of domestic coal supply for the project would stay unchanged with its taking up an additional stake before it exercised the option.
Sembcorp also has plans to take up an incremental 16 per cent stake in TPCIL, up from its current 49 per cent interest, with Gayatri Energy owning the rest. This will change majority ownership from Gayatri's hands to Sembcorp.
Both power projects, located in India's southern region where economic growth and the demand for electricity is strong, will go towards meeting the country's rising power needs, Sembcorp said.
Urbanisation, industrialisation and the growth of the middle class is expected to drive energy demand and the growth of India's power sector substantially over the next decade.
Construction of the NCCPP project is about 30 per cent completed and is expected to come onstream in early 2016.
Sembcorp's existing TPCIL project is also nearing completion. It is more than 80 per cent finished, with commercial operations targeted to begin in the third quarter of 2014 and the plant's second, 660-megawatt unit expected to start work by the end of the year.
"We believe this year will be slow for Sembcorp's utilities business as there is no new power plant to come on board in 2014 besides TPCIL, while Singapore's power prices may be under pressure," said Mr Agarwal.
Sembcorp will fund the acquisition with internal funds and borrowings.
Its shares closed five cents lower at $5.20 yesterday.
