Sembcorp Industries to sell Indian coal power unit for 117 billion rupees
Sharanya Pillai &
Uma Devi
SEMBCORP Utilities, a wholly-owned subsidiary of Sembcorp Industries , has entered an agreement to sell its 100 per cent stake in its India-based coal power unit for 117 billion rupees (S$2.1 billion) to Tanweer Infrastructure.
The unit, Sembcorp Energy India Limited (SEIL), is one of the largest independent power producers in India, operating 2 coal-fired plants totalling 2.6GW. The S$2.1 billion price tag is at an implied price-to-book multiple of 1 time, Sembcorp said in a bourse filing on Monday (Sep 5).
The buyer, Tanweer, is indirectly owned by a consortium led by the Oman Investment Corporation (OIC) in partnership with the Oman Ministry of Defence Pension Fund and Dar Investment.
Tanweer will settle the final consideration via a deferred payment note (DPN) provided by Sembcorp Utilities.
In a call on Monday (Sep 5) to discuss the transaction, Sembcorp’s chief financial officer Eugene Cheng said the DPN arrangement was made chiefly in light of “where financing markets are today”.
Cheng noted there is currently a “lack of liquidity” in global financing markets, particularly for coal assets.
The DPN arrangement will “allow the incoming buyer to meet the fair value of the asset” while allowing Sembcorp to meet its objectives, he added.
Sembcorp’s top executives also stressed that this sale does not mean the company is backing out of India.
Sembcorp’s chief executive Wong Kim Yin said the move will help the company “free up resources” to invest in other projects in India, particularly those that are related to renewables.
The transaction will improve Sembcorp’s leverage ratios. For instance, on a pro-forma basis, debt to Ebitda (earnings before interest, taxes, depreciation and amortisation) for H1 would fall to 4.9 times from 5 times.
Vipul Tuli, chief executive of Sembcorp Industries’ South Asia arm, said the company remains committed to India.
“We believe (India) is one of the fastest-growing power markets in the world, and it has one of the most ambitious energy transition programmes in the world,” he said.
Tuli said Sembcorp is continuing to evaluate wind and solar opportunities in India. Other areas of opportunity include round-the-clock (RTC) power, storage and green hydrogen.
The company’s investments in the country are not just expected to continue, but “accelerated” after this transaction.
The move will also speed up Sembcorp’s transformation of its portfolio from brown to green.
With the sale of SEIL, 51 per cent of Sembcorp’s energy capacity will be renewable energy, up from 43 per cent. The transaction will also reduce Sembcorp’s greenhouse gas emissions intensity from 0.51 tCO2e/MWh (tonnes of carbon dioxide equivalent per megawatt hour) to 0.32 tCO2e/MWh.
On a pro forma basis, Sembcorp’s share of net profit from its sustainable solutions portfolio for H1 FY2022 will increase from 25 per cent to 31 per cent.
Wong said this deal will help Sembcorp to concentrate its efforts on growing its sustainable solutions portfolio – which is a key focus of the company’s 2025 targets.
Geographically, the company will focus on growing its renewables portfolio in South-east Asia, China and India.
The net asset value of SEIL compared with the net asset value of Sembcorp stood at 46.7 per cent, based on Sembcorp’s H1 financial results. The net profit of SEIL compared with that of Sembcorp was 21.4 per cent.
Cheng said Sembcorp is “very confident” that it can make up for the loss of contribution from SEIL.
Beyond the sale, Sembcorp will continue to render advisory services to SEIL through a technical services agreement, while also supporting its initiatives to reduce greenhouse gas emissions. The latter will be done through a financial incentive, where the interest rate under the DPN will be reduced correspondingly with improvements in SEIL’s emissions intensity.
In an indicative timeline, Sembcorp said it expects to hold an extraordinary general meeting (EGM) in November for shareholder approval. The expected completion of the deal and the transfer of SEIL to the purchaser will take place 6 months after the EGM.
Shares of Sembcorp closed at S$3.33 on Monday, up 0.3 per cent or S$0.01.
