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Groups have started appreciating the risks that are associated with solar projects and which can be mitigated in India

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Below are the excerpts of our recent interview with Mr. Amit Mehta , Assistant Vice President, Greenstone Investment Bank

What are investors looking for while investing in solar projects?

There are two types of investors - first being the developer community which consists of players who want to be in the sector as a long term IPP. These are the groups looking for long term stable cash flows. They want to build a business around this that would give them stable equity returns. These are generally long term asset owners. Other set of groups is of the private equity players or institutional investors who are looking out for projects or platforms which can give them a lucrative valuation at a defined exit. The thinking behind IPP would be a stable return of say 15-16% over a period of 25 years,whereas for a private equity or a financial investor would be to invest in the projects with a certain return threshold of 15-17% with an expectation to get an uptick to the valuation after 5-7 years when they exit to a lower cost of capital via an IPO or a sale.

How can we examine the availability of latest financial models and their return expectations?

Traditional financial model to fund RE projects is pure debt and equity. Though, we are now seeing some type of mezzanine financing and sub debt products, however, the rates of these are slightly unattractive for the developers when compared to bank debt.  Bond route is one other financial model that is being explored with few groups successfully completing the recent green bond issuance. We will move into a phase where traditional financing will shift to public markets with structures such as InVit’s or YieldCo’s as more and more operational capacity comes online over the next 2-3 years.

What is the market outlook for wind and solar investments for the year 2016-17?

In terms of investing in solar and wind, we definitely see that there is a lot of scope in solar. Between the top 8-10 players, you would have seen over a $1 billion of investment commitments over the last one and a half year. We expect the same companies to look for more capital in the next 1-2 years when they start bidding and executing more capacities.  Groups have started appreciating the risks that are associated with solar projects and which can be mitigated in India. Earlier few foreign players found India as a very risky proposition and that mindset is now changing. Large foreign renewable energy players can thus start coming to India. People have now started believing that this is the right geography if you want to invest in renewable energy. 

Same would be applicable for wind as well; maybe to a little lower extent because of lesser players and how not-so-attractive tariffs one gets as compared to what the solar industry used to get a year back. But now with solar tariffs going down and returns being challenged, wind can come up again as an option for investment. 

We would like to know some milestones you wish to achieve this year.

We are an investment bank that aims to close multiple transactions every year. We closed one of the largest transactions last year helping the Aditya Birla Group raise capital from a Middle Eastern fund. We have closed few other smaller transactions in the M&A and distributed generation space. We have recently started to focus more on M&A activities and aim to announce 2 –3 such transactions over the next 6 - 12 months.

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