JSW Neo Energy, a wholly owned subsidiary of listed JSW Energy, has emerged as the lead bidder to acquire O2 Power, the renewable energy platform held by Swedish asset manager EQT Partners and Singapore’s Temasek Holdings, said people aware of the development.
JSW is competing with Australian asset manager Macquarie Group, the other key contender for the portfolio.
While JSW Group and O2’s shareholders and senior management are engaged in intense negotiations, both binding offers — submitted recently— are in the range of $600-700 million, excluding debt, and have fallen short of seller expectations, who are seeking $800 million to $1 billion
JSW Neo’s bid is said to be higher in value, but with several conditions, while a lower offer from Macquarie has fewer of these attached. JSW Neo, Macquarie and infrastructure investor Stonepeak have submitted binding bids. A fourth suitor, I Squared Capital, chose to sit it out.
The New York-based private equity firm had made the cut in the initial round of screening.
Stonepeak is not being considered a serious contender unless it improves its offer by at least matching the others, said the people cited above.
O2 Power’s current portfolio of 3.77 GW includes 1.34 GW of operational capacity, 30% of which comprises wind assets. It sold 350 MW of solar assets from the Rewa Ultra Mega Solar project in Madhya Pradesh to the Edelweiss Alternatives-backed Sekura Energy for an enterprise value of Rs 2,000 crore, 1.6 times book value, this October.
Temasek, EQT, JSW Energy, Macquarie and Stonepeak declined to comment. O2 Power didn’t respond to queries.
ET was first to report on March 4 that EQT Capital and Temasek had decided to sell 02 Power and that Barclays had been appointed to initiate a formal sale process.
Green Sheet
Incorporated in 2019, O2 Power is a wholly owned subsidiary of O2 Power SG Pte, with investments from EQT and Temasek in a 51:49 ratio. The duo had backed a professional team led by Parag Sharma, former chief operating officer of Renew Power, and Peeyush Mohit, vice-president of strategy at the same company, to start O2’s operations. Till date, the two sponsors have deployed around $450 million in equity, less than half of what they had originally envisaged. The platform currently has $800-900 million of debt, so the offers in hand value the platform at $1.35-1.5 billion, inclusive of debt. Upon reaching 4 GW, the debt number is expected to treble to a little over $2 billion.
“Nobody wants to ascribe a premium for build outs that are still in the pipeline,” said an executive directly involved in talks. “Typically, sellers include that when they seek offers and often, that is where the bid-ask differences arise. In several M&A situations in the sector, that has been a challenge and a key reason why deals are taking longer than before to get stitched.”
O2 has a project pipeline of 1.05 GW (Rs 3,505 crore order value), which is expected to be executed in the next two financial years. It is keen to hit 4GW capacity by FY26. The company has already signed power purchase agreements for 4.5 GW, 90% of which is contracted with central government utilities such as NTPC and Solar Energy Corporation of India. Only 10% of the portfolio is earmarked for state electricity boards.
“Going by past experience, raising capacity addition by 1 GW (to 2.5 GW, from 1.5 GW) per year for five years typically needs an additional equity support of $300-350 million, depending on the split between wind, solar and storage,” O2 chief executive Sharma told ET in October.
JSW Neo has been on the lookout for similar assets in India, including the 760 MW operational units belonging to Italy’s Enel Group and Ayana Renewable Power, owned by National Investment and Infrastructure Fund.
It recently acquired three wind energy projects of Hetero Wind Power with a capacity of 125 MW for an enterprise value of Rs 630 crore. However, the 2023 acquisition of 1.75 GW of renewable energy generation capacity from Mytrah Energy (India) for an enterprise valuation of approximately Rs 10,530 crore, remains its largest.
The company has an ambitious target of hitting 20 GW of renewable energy capacity by 2030, 50% of which will be operational by the end of this fiscal year. JSW Neo alone has 7.7 GW of green energy projects, including hybrid, under various stages of construction, while another 4.3 GW has already been installed.
EQT, with its roots in the Wallenberg family behind Swedish giants such as ABB, Ericsson, Saab and Electrolux, had launched O2 from its infrastructure fund IV. Earlier this year, it announced the launch of its infrastructure fund VI that aims to raise 21 billion euros, making it one of the largest capital pools for hard infrastructure assets worldwide.
Temasek, a long-time India backer, has been actively pursuing investments in technology, consumer and internet, healthcare and financial services. Across infrastructure and real estate, it is present via multiple platforms and wholly owned companies such as CapitaLand, Sembcorp Industries, Singapore Airlines and Keppel Corp.
With 7% of its total assets under management deployed in the country, India has emerged as Temasek’s best-performing market over the past decade, a key factor in the Singapore state investor’s total exposure to the country soaring to $37 billion.
Source: Economic Times