Despite industry slowdown, Sembcorp bets big on Indian power

Even as the power industry continues to remain in the doldrums, Singapore-based Sembcorp sees a vibrant future for both its Indian foray as well as the industry. In an interview with CNBC-TV18, Sembcorp India CEO and Country Head Vipul Tuli said that though demand may remain weak for the next two-three years, the company is looking to aggresively ramp up operations.He did not confirm speculation in recent news reports that Sembcorp plans to buy two power plants of about 1200 megawatt capacity, only saying that it is talks with four-five players in the industry to push its inorganic growth strategy."We can expect a deal closure in the next six months," he said.Below is the verbatim transcript of Vipul Tuli’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. Latha: I want to know if you are buying any power assets. The banks are desperately looking for buyers. They have tried to put in that strategic debt restructuring scheme for some of the companies are you buying anything? A: India is a very strategic and an important focus market for us. We are here for the long run. We already have about 3,500 mega watts of power capacity here. We are quite confident that the longer term prospects for the power market in India are positive, although we are in slightly difficult moment at the moment. So, yes, we are looking to buy. We are looking a quite selectively at different types of thermal power assets. We are also looking for to acquire solar platform; of course we have operations both in India and in 15 other countries. So, we are also looking in other countries. In terms of thermal power we are looking for assets which are relatively larger scale preferably super critical and of course if possible where the coal and the off-take issues are relatively in under control. Latha: What is your kitty? A: We don’t have a specific target for acquiring a certain amount in India. We are about close to 11,000 megawatts globally in terms of power and our rough aspiration, if I could put it that way is to double that over the next five years. India is already a very significant part of that and we could see as much as 30-40 percent of that come from India. So, we are looking at I would say fairly substantial, but we haven’t put a specific number on what we are looking for. It depends on valuations and whether we find something that is meets our investment criteria. We are not looking for super normal returns but we are looking for reasonable sustainable returns. We are a utility, we are here to stay and we are looking over the 25-30 year period to deliver sustainable returns from well performing assets. We do have a fairly strong mandate from our board but depends on what is available. Sonia: There are some reports indicating that in the next 18 months you would be acquiring two power projects of around 1,200 megawatts capacity. Is that report true? A: We are looking at aggregate projects in much larger number than that. What we actually acquire could be anywhere from, I don’t think we will go something less than 500-600 megawatts because that becomes very low scale. On the upper end we haven’t put a cap. We are talking to at least four or five players at the moment and it is bit early to confirm that. Latha: Are you talking to the banks or are you talking to the promoters? A: At the moment if you look at the strategic debt restructuring that you mentioned so far mostly the assets that are in play are from the promoters. However, we do expect over the next six months that- that will change and the banks will be solace so we are talking to both at the moment. However, I think it is really over the next six months may be the next nine months that the banks will actually be solace. There are some small assets in the market now but the substantial ones will come later. Latha: Can I rattle out some names, Jaiprakash Power, GMR, Lanco Infratech, Bhushan, Monnet Power talking to any of them? A: Yes. Latha: Which one? A: We leave it at that, it is too early to speculative on which names but we are talking to several players. Sonia: Is there anything that we can expect to see closed say in the next three to six months itself? A: I should hope so; well three months may be a little early because these things take their due process and so on. We are hopeful within six months. Latha: So, is your plan that when the banks come and talk it is better to buy from them because you will get write down on debt? A: The way we look at it is not so much about write down of debt. It is around what valuation of the asset can lead to a sustainable return in the expected market conditions. As you know the market conditions over the next two to three years are relatively slow, demand is down, the states are yet to come in to the market for power purchase agreement (PPAs) so obviously the valuations that the market can sustain and give you decent returns is somewhat depressed at the moment. We are quite opened to talk to banks; we are quite open to talk to promoters. As long as we can get valuation that give us the returns. I must say though that if I look at it from the point of view of the banks I do hope that we will be a credible and attractive partner from the banks point of view because we are an international player. We are a long term operator and we now have the experience of building operating, acquiring plants in India. So, we hope to be able to bring the best of global as well as Indian experience as because of course you are a bank and you acquire a asset you then need someone to operate it. Latha: One of your correspondences picked up from the market that in your joint venture (JV) with Gayatri Projects you are looking to get a refinancing of Rs 13,000 crore loans through the 5:25 route? Can you add to this? A: It is not Rs 13,500, as you know in our Nellore complex which is near Krishnapatnam we have two companies with an aggregate capacity of 2,640 megawatts. One of them is Thermal Powertech (TPCIL) the other Sembcorp Gayatri Power Limited. Thermal Powertech is fully operational. We have PPAs worth 86 percent of our capacity and full linkage so we are dispatching and that is a well operating plant. As this plant has moved from the construction stage to the operating stage in a normal course of things we are obviously prudently looking at reducing the cost of debt. So, we are talking to various banks for refinancing. For the other part which is Sembcorp Gayatri Power that will get commissioned in two phases within this year At the appropriate time we will look for refinancing for that as well but yes we are looking for refinancing.