Temasek-backed Sembcorp set to pump in $600 million in India power arm

Source: LiveMint.com, Mar 28, 2017

New Delhi: Sembcorp Industries Ltd, controlled by Singapore’s state-run investment firm Temasek Holdings Pte Ltd, is set to provide about $600 million to its Sembcorp Gayatri Power Ltd (SGPL) unit that operates a 1,320 megawatt (MW) thermal plant in Andhra Pradesh.

Sembcorp will subscribe to $600 million worth of bonds issued by the Indian unit, a person with direct knowledge of the matter said on condition of anonymity. The funds will be used by Sembcorp Gayatri to pay down its domestic debt from about $1.05 billion to about $450 million, the person said.Sembcorp Gayatri built the power plant at an investment of about $1.5 billion.

The capital infusion from the parent indicates the group’s confidence in the long-term prospects of conventional thermal power business in India, which at present is banking on a host of policy reforms in the electricity value chain starting from transparent coal supplies to debt restructuring in the distribution business for a growth stimulus.

The poor financial health of power distribution companies limits their ability to buy power, leading to an artificial suppression of demand. This, in turn, puts thermal power producers such as Sembcorp Gayatri under pressure. Muted demand for long-term power purchase deals forces thermal power producers to sell electricity through short-term deals and exchanges, which affects their rate of return.

“We would like to clarify that there is no fresh capital infusion being planned,” Sembcorp said in response to an emailed query.

Sembcorp Industries, which owns 88% in Sembcorp Gayatri, had said in a statement citing the Indian power unit’s managing director Atul Nargund that the successful completion of the supercritical thermal power plant reinforced the group’s “long-term commitment to supporting India’s continued development and its energy security”. The plant located in Nellore district is selling power without long-term power purchase pacts.

“Sembcorp has a substantial commitment in India, which is one of the key markets. There is a strong belief in India’s long-term growth story. The project will be supported as long as it is necessary,” said the person cited above.

One major milestone that will indicate the revival of the sector is discoms eliminating the gap between average revenue realized and the cost of power supply by the March 2019 deadline set in the government’s power utilities turnaround scheme Ujjwal Discom Assurance Yojna, said

Sudip Sural, senior director, Crisil Ratings.

Sembcorp Utilities Ltd, an arm of Sembcorp Industries, has solar and wind power assets in India.

It has major expansion plans in the country, including in on-site logistics of large petrochemical complexes, waste management and urban planning.“Sembcorp has close to $4 billion investment in India in equity and debt representing 30% of the company’s global balance sheet. That will be maintained going forward if sustainable returns are on offer,” added the first person cited above.

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