Oil and gas major Royal Dutch Shell has emerged as the frontrunner to acquire Sprng Energy, the Indian renewable platform of Actis, said people aware of the matter.
Shell’s offer that was submitted last week, valuing the portfolio at $1.75-1.8 billion inclusive of debt, is said to be higher than Singapore’s Sembcorp Industries, the only other contender who made a binding offer from a field of six who were earlier picked from the original list of 17 for due diligence, the people mentioned above added. The final six also included Adani Group, Canadian pension fund CPP Investment Board (CPPIB), ArcelorMittal and Australia’s infra-focussed fund Macquarie but none of the four submitted a formal offer on March 15, the deadline for the bid.
Earlier in the year, Shell had also emerged as the highest bidder in the qualifying rounds.
Heightened Scrutiny
It had submitted a $1.2 billion non-binding equity offer, ET had first reported on January 10. The debt on these assets is $960 million.
Like several of its oil and gas peers, Shell, the world’s largest trader of liquefied natural gas, has also been under heightened scrutiny from shareholders and green activists who have been pushing legacy energy giants to reduce their exposure to fossil fuels by voting for climate-related resolutions at shareholder meetings.
The Sprng acquisition, if completed successfully, would be the biggest renewable energy foray in India by Shell or by any global ‘Big Oil’ corporation till date. So far, Shell’s limited exposure in the space are a 49% stake in solar power producer Cleantech Solar Energy and a minority exposure in Bihar-based rural distributed utility company Husk Power Systems via Shell Technology Ventures, its VC arm.
Standard Chartered Bank is the adviser to Shell for the deal.
Shell and Actis declined to comment. Mails to Sembcorp did not generate a response.
“Of the two firm bids in play, Shell’s is the higher bid even if they have scaled down their original offer a bit post diligence,” said an official involved who spoke on condition of anonymity as the talks are in private domain. “Some of the debt needs to be restructured but these conditions (CPs) are nothing out of ordinary. Contrary to expectations, strong contenders Adani and CPPIB favourites sat out, though if talks fail, Adani might spring into action like it did in the Softbank trade.”
Last May, Adani Green Energy Limited, the renewable energy arm of the Adani Group, came from behind and sealed a Rs 26,000 crore buyout of SB Energy, Softbank’s green energy JV with Bharti Enterprises, after negotiations with CPPIB took months to complete.
Sprng Energy has signed power purchase agreements (PPAs) for 2.6 gigawatts (GW), of which 2.1 GW will be operational by this month end while another 600 MW is expected to be operational by March 2023. The FY22 Ebitda for all the contracted assets is pegged at $220 million (Rs 1,650 crore at exchange rate of $1 = Rs 75). Actis, an emerging markets focussed private equity firm, had mandated Bank of America to officially launch the sale process for Sprng Energy last September. This is the second platform Actis had created after it sold Ostro Energy, its original green power platform, to ReNew Power Ventures in 2018 at an enterprise value of $1.5 billion.
Sprng Energy was set up by Actis Fund 4 with an equity commitment of $450 million (Rs 3,375 crore) in March 2017 to continue its renewable sector investments in India, 95% of which has already been deployed. More than 65% of the current operational capacity is tied up through PPAs where the off-taker has a relatively strong credit profile, according to a January CARE Ratings report. The portfolio comprises 891.5 MW of assets that are operating for more than 2 years.
GREEN PIVOT
Since February 2021, Shell has detailed its strategy to achieve its target to be a net-zero emissions energy business by 2050. In October 2021, Shell set a revised target to reduce absolute emissions by 50% by 2030, from 2016 levels, which includes all Scope 1 and 2 emissions (direct greenhouse emissions that occur from sources that are controlled or owned by an organisation) and even outlined a $5-6 billion per year investment plan in green energy after a District Court in The Hague ruled that by 2030, Shell must reduce its worldwide net-carbon emissions by 45%, compared with 2019 levels.
Even as recent as last October, Third Point, a US hedge fund and activist shareholder, sought to break up Shell, by saying the Anglo-Dutch supermajor had “too many competing stakeholders,” resulting in “an incoherent, conflicting set of strategies attempting to appease multiple interests but satisfying none.”
“Global oil & gas majors have been transitioning to full-stack energy behemoths with an enhanced play across renewables and natural gas, along with value chain expansion,” said Prateek Jhawar, head, infrastructure & real assets, Avendus Capital.
Shell posted income of $20.6 billion in CY 2021, compared with a loss of $21.5 billion the previous year while its cash flow from operations went from $34.1 billion in 2020 to $45.1 billion in 2021.
From building one of Europe’s largest bio fuel facilities in Rotterdam to joining forces with ScottishPower to set up 5 GWs of floating wind projects in UK and starting a 20 MW hydrogen electrolyser facility in Zhangjiakou, China, Shell has been ramping up its clean energy bets.
Last December, it acquired US-based solar and energy storage developer Savion from Macquarie’s Green Investment Group, to expand its global solar portfolio as part of the push to move to net-zero emissions. With the buyout, Shell said it aimed to sell more than 560 terawatt hours globally per year by 2030 — twice as much electricity as the company sells currently — and expected to serve more than 15 million retail and business customers worldwide.
It has also bought 100% of Australian renewable company Meridian Energy Australia Group that operates energy retailer Powershop.
