KKR to buy Shapoorji Pallonji Group's solar assets for Rs 1,554 crore

KKR has evolved a traditional sector-based approach to infrastructure – spanning assets such as transportation, energy, telecom, water and waste, among other segments
With equity commitments worth Rs 2,500 crore to several ongoing projects pending, and debt levels rising, Shapoorji Pallonji Group (SP Group) on Monday sold its solar power assets to global financial powerhouse KKR for Rs 1,550 crore in a fire sale.

But analysts said this sale will not be enough for SP Group company to meet its financial commitments and it will have to sell more assets in the near future to trim its debt.

The portfolio sold by Shapoorji Pallonji Infrastructure Capital Company (SP Infra), a subsidiary of SP Group’s holding company, comprises 169 megawatt (Mw) in Maharashtra and 148 Mw in Tamil Nadu (adding up to 317 Mw). SP Group will use the funds to trim its debt and invest in other businesses, including roads, ports, and power.

The sale of solar assets took place against the backdrop of the company’s earlier proposed private equity (PE) transaction of Rs 500 crore failing to materialise, thereby hampering its ability to fund its sizeable equity commitments towards its projects.

While rating SP Group firm’s Rs 4,200-crore debt in December last year, rating firm ICRA had said the debt repayments in the first half were met through funding support from the holding company —Shapoorji Pallonji Company.

SP Group holding company, which holds 18.5 per cent stake in Tata Sons, was trying to raise funds by pledging Tata Sons shares, but did not go ahead, as Tata Sons shares are illiquid and Tatas had threatened litigation.

“The existing equity commitments of Rs 2,543 crore over next three years is expected to be met through the proposed Rs 600 crore of structured PE investment and the rest through asset monetisation and development fees from under-construction projects,” ICRA had said.

The rating firm was also worried about the company’s increasing total debt levels as reflected by increase in gearing to 1.45x as on March 31, 2019, from 0.92x as on March 31, 2019. Adjusting for promoter loans, the gearing for external debt had also increased to 1.19x as on March 31, 2019, from 0.74x as on March 31, 2018.

Reacting to the news, the stock of Sterling and Wilson, in which SP Group is a co-promoter, was up 5 per cent, as investors are expecting timely payment of debt taken from the listed entity by the promoters.

On the other hand, the deal is part of KKR’s Asia infrastructure strategy to increase its presence in the infrastructure sector. A KKR official said the firm was working on this transaction for the past six months. Though the coronavirus disease (Covid-19) pandemic had slowed down the process, both sides wanted to close the deal.

“SP Group’s solar underlying assets are generating revenue and Covid-19 did not impact operating assets,” said a KKR official.
KKR is going ahead with those deals which have strong cash flow and are in the electricity transmission and in renewables business, a KKR official said.

Last year, KKR has invested in IndiaGrid Trust, which has electricity transmission assets and was looking for renewable power generation assets since then.

“Given the growing demand across Asia Pacific for sustainable energy solutions, we also see this as a great example of how KKR can bring capital and expertise to assets to help meet the demand for infrastructure development,” said David Luboff, head of Asia Pacific Infrastructure at KKR.

SP Group officials said the deal further demonstrates SP Infra’s continued track record of developing high-quality infrastructure.
“The deal will create value for further growth in its businesses, and be the partner of choice for high-quality international investors like KKR,” Mukundan Srinivasan, managing director of SP Infra, said.

An email sent to SP Group on falling financial metrics did not elicit any response.


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