Tata Power Co Ltd has signed an agreement to buy the renewable energy business of Welspun Group for Rs 9,249 crore ($1.4 billion) including debt, making it the top player in the green energy sector in the country.

The deal is the largest in India's renewable energy sector thus far, the Tata group company said in a statement late on Sunday. It is also one of the biggest in the power sector and comes as Tata Power sells some of its overseas businesses and focuses more on its India operations.

The Tata group company said in a statement late on Sunday that it has inked an agreement to buy Welspun Renewables Energy Pvt Ltd from Welspun Energy Pvt Ltd. It disclosed the enterprise value of the deal in a stock-exchange filing on Monday.

Welspun Energy is privately owned by the Welspun Group with public listed Welspun Enterprises Ltd holding around 15.5% stake.

Welspun Renewables has one of the largest operating solar power portfolios in India spread across 10 states. It has about 1,140 MW of renewable projects comprising about 990 MW solar and about 150 MW of wind power projects. Of this, nearly 1,000 MW capacity is operational and the remaining is under advanced stages of implementation.

Tata Power Renewable Energy Ltd currently operates 294 MW of renewable power capacity, and 500 MW of renewable assets are being carved out of Tata Power into this wholly owned arm. In addition, almost 400 MW of solar and wind power projects are under implementation. Tata Power Renewable will have renewable assets portfolio of about 2,300 MW with all these assets, making it the largest renewable power company in India, Tata Power said.

“This acquisition will enable the company to deliver significant value for all stakeholders as most of the assets are revenue generating and operating assets.  Tata Power can further enhance value of these assets with its operational experience and financial optimisation,” Tata Power CEO and managing director Anil Sardana said.

He added that the acquisition is also a significant step toward attaining the company's objective of having 30-40% of its total generating capacity based on non-fossil fuels.

Tata Power, together with its subsidiaries and jointly controlled entities, has an installed gross generation capacity of 9,184 MW and a presence in all the segments of the power sector--fuel security and logistics, generation (thermal, hydro, solar and wind), transmission, distribution and trading. After this acquisition, its installed gross generation capacity will be 10,324 MW.

Tata Power hived off its renewable energy assets into the new unit late last year. In March, Tata Power Renewables signed a pact to acquire a 30 MW wind farm from a unit of Indo Rama Renewables Ltd. In April, Tata Power agreed to sell its 50% stake in a joint venture that is developing a geothermal power project in Indonesia for $30 million (about Rs 200 crore).

The latest deal could also open up a liquidity pipeline for GE Energy Financial Services, an arm of American multinational conglomerate General Electric. Two years ago it had agreed to invest $24 million in a 151-megawatt solar photovoltaic power project built by Welspun Renewables at Neemuch in Madhya Pradesh.

The deal would also open up an exit opportunity for multilateral development finance agency Asian Development Bank, which had signed an agreement to make an equity investment of $50 million in Welspun Renewables.

It could not be immediately ascertained if the two are staying put as an investor in the project and the company.

JM Financial Institutional Securities Ltd acted as exclusive transaction adviser to Tata Power Renewable. KPMG India was the accounting and tax adviser while AZB & Partners acted as the legal adviser for this transaction.

Barclays acted as exclusive financial adviser to Welspun and Cyril Amarchand Mangaldas was legal adviser for this transaction. The deal is likely to be closed by September, Welspun said.

Power in action

There have been a slew of deals in the sector. JSW Energy has struck two large deals in the domestic power sector over the past year to expand its generation capacity. Last September, it acquired two hydroelectric projects with total capacity of about 1,400 MW in Himachal Pradesh from Jaiprakash Power Ventures Ltd at an enterprise value of Rs 9,275 crore ($1.4 billion then) with additional milestone-linked payments of up to Rs 300 crore by 2020.

Last month, the Sajjan Jindal-controlled firm said it would buy a 1,000-megawatt thermal plant in Chhattisgarh from Jindal Steel & Power Ltd, controlled by his brother Naveen Jindal, for up to Rs 6,500 crore ($975 million) including debt.

In another significant transaction, Gautam Adani-led Adani Power Ltd bought Avantha Power & Infrastructure Ltd's 600 MW thermal power project Korba West Power Co Ltd for an enterprise value of Rs 4,200 crore ($680 million then).

The power sector has seen positive momentum built up over the past couple of years. While India's status as the world's fastest-growing major economy has attracted both financial and strategic investors into the country, reform measures have helped boost confidence.

In April, the first month of the new financial year, electricity generation rose at the fastest pace in more than a year, at 14.6%.

The major problem in the industry relates to poor financial health of state distribution firms, which purchase electricity from power producers--both state-owned and private. The inability to pay by debt-laden, loss-making state discoms has created a supply-demand mismatch in the country. However, the recently rolled out UDAY scheme, which seeks to restructure the state discoms' financials, has lent hope in the power sector at large.

On the other hand, the government has set ambitious targets for renewable energy business in the country. It aims to achieve 175 gigawatt (GW) of renewable power generation capacity by 2022. Of this, 100 GW is expected to be in the solar power domain and 60 GW in wind power.

In another deals in the making, the Adani Group is mulling to bid for the local solar assets of US-based renewable energy giant SunEdison. Jayant Parimal, Adani Green Energy Ltd's CEO, recently told reporters that it has received a proposal to buy the assets of the financially troubled global firm and is evaluating the same.

SunEdison filed for bankruptcy protection in the US in April after an ambitious growth plan piled up debt that it couldn't repay. SunEdison has 410 MW of commissioned solar power and another 1,000 MW under construction across several states.

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