Infrastructure India Plc. (IIP), an investment firm listed with the London Stock Exchange and focusing on Indian infrastructure assets, is investing £16.5 million (Rs 122 crore) in the MW Corp Group-promoted Shree Maheshwar Hydel Power Corporation, according to a company statement to the exchange.
“This investment into Shree Maheshwar, at a key inflection point in the project’s history, has been structured to deliver an attractive return to the group, and extends the return guarantee mechanism on the initial investment, thereby providing considerable value to the group’s total investment in the business,” IIP chairman Tom Tribone commented on the investment.
“Shree Maheshwar project is positioned to be an important private sector hydropower project. We are delighted to be able to increase our interest in the project as it is about to commence operations, and to further strengthen our relationship,” said Sonny Lulla, IIP’s chief executive.
IIP made an initial investment of around £13 million in the company in mid-2008 (its value rose to £21.4 million or Rs 158.36 crore as of March 31, 2011). The current funding is its second investment in the firm, which will take IIP’s aggregate equity interest in Shree Maheshwar to 17.7 per cent (7.9 per cent on a fully diluted basis).
Shree Maheshwar Hydel Power is the first private sector hydro project in the state of Madhya Pradesh. It is a 400 MW run-of-the-river project on the river Narmada, located at Mandleshwar in the district of Khargone – 108 km south-west of Indore. The project is expected to commence power generation by late 2011.
The investment returns are protected by way of regulation and a power purchase agreement, which will provide for a return on equity to investors in the project, while IIP’s returns are to be protected by way of an IRR guarantee arrangement on cash flows.
Under the current deal, IIP is expected to earn a minimum IRR (internal rate of return) of 17 per cent. While the maximum IRR is not contractually limited, it has agreed to share returns above certain thresholds on this second-round investment with certain co-investors in Shree Maheshwar.
Additionally, IIP has also negotiated a three-year extension concerning the original guarantee (with a minimum IRR of 15 per cent), previously provided relating to its initial investment made in 2008. If the guaranteed IRRs are not achieved on its exit, certain shares in Shree Maheshwar will be transferred to the investor.
In June this year, IIP had announced the acquisition of another exchange-listed firm, Indian Energy Plc., which owns and operates wind assets in the country.
IIP had also acquired stakes in two Guggenheim Partners-backed Indian companies – India Hydropower Development Company (which operates hydroelectric power assets) and Vikram Logistic & Maritime Services (it develops and operates transportation and container processing infrastructure).