Ending months of negotiations, SoftBank agreed last weekend to sell its entire 80% holding in SB Energy Holdings to Canada Pension Plan Investment Board (CPPIB) for $425 million. An additional $100 million will be paid subject to future outcomes, said people aware of the development.
The sale price is much below the $800 million book value or equity invested in the high-profile joint venture and a far cry from the $1.2 billion originally sought.
Bharti Enterprises, the other partner in the alliance with the right of first refusal, decided to stay on with a 20% stake in the operator of solar, wind and hybrid renewable power plants but might add a put option in its new joint venture agreement with the Canadian fund. This will be CPPIB’s second association with Bharti after buying into its tower arm, Bharti Infratel, with KKR.
The deal is expected to conclude in March 2021 subject to conditions precedent sought by the Canadian fund related to SB Energy’s projects and debt. If the conditions are not met, SoftBank will transfer a 5% stake that it is temporarily holding as security for free to CPPIB, the people said.
“For the moment, 75% of SoftBank’s shareholding is getting transferred. The remaining will take place after the conditions precedent are fulfilled. But the pricing has been fixed for the entire 80%. This structuring is due to the long project pipeline that remains under a cloud and financing issues that need to be settled,” said one person on condition of anonymity because the talks are in the private domain.
Among them is a project in Andhra Pradesh, where SB Energy has already paid for land which is yet to get transferred. A consortium of Japanese banks and institutions including Japan Bank for International Cooperation ( JBIC) and MUFG Bank and Sumitomo Mitsui Banking Corporation ( SMBC) had financed its first project in Andhra Pradesh with a $200-250 million loan. The line was guaranteed by the SoftBank Group and needs to be refinanced with a bond once SoftBank exits.
In Rajasthan, some planned projects are under the scrutiny of the environment and wildlife authorities and their future sustainability is not clear.
CPPIB has informed the operating team that it will monitor the business for the next few months and no business decision can be taken without its approval.
CPPIB, Bharti declined to comment on the stake sale agreement.
Softbank did not respond till press time.
DISTRESS SALE
ET was the first to report in its October 24 edition that SoftBank and CPPIB had entered into exclusive negotiations. Since January 9, ET has consistently reported about SoftBank’s exit plans.
SB Energy had a target of setting up 20 GW of clean energy projects with an investment of $20 billion over 10 years when it was set up in 2015. It had earlier tapped a few strategic and sovereign wealth funds and evaluated the option of making an offer. But since the beginning of the year, SB Energy has been seeking emergency funding to complete its operating portfolio and pipeline after SoftBank founder Masayoshi Son decided against further capitalising the venture.
From attempting to bring on board a strategic partner for growth equity to a failed attempt to raise $600 million through a maiden dollar bond in the middle of the pandemic, SoftBank eventually had no choice but to sell at distressed valuations, said industry participants.
The company says it has a 7.7 GW pipeline of projects in India and the US and will reach its 20 GW target within the next five years. It has almost 2 GW of operating renewable energy capacity in India, 2 GW under construction, and an additional 3,700 MW under “active development” with contracts in hand, according to the management. Analysts, however, question the viability of the pipeline projects due to recent tariff drops.
Son teamed up with Bharti’s Sunil Mittal and Taiwan’s Foxconn Technology Group in 2015 to form a 70:10:20 alliance to build solar and wind parks and subsequently start manufacturing panels in India to promote Prime Minister Narendra Modi’s clean energy and Make in India initiatives. Plans by Foxconn to set up a manufacturing base went nowhere and it exited without putting in any equity, making the company an 80:20 venture between SoftBank and Bharti.
