Hero Future in talks to raise Rs1,000 crore from CDC Group, IFC

Hero Future Energies Ltd, the renewable energy arm of the Hero Group, is in talks with CDC Group Plc and International Finance Corp. (IFC) to raise $150 million (aboutRs.1,000 crore), according to two people close to the development, reports livemint.comHero Future is offering 25-30% in the company to CDC Group, a development finance institution owned by the UK government, and the private sector investment arm of the World Bank, the people said, seeking anonymity as the talks are confidential.

India’s renewable energy sector has attracted strong interest from foreign funds after the government sharpened its focus on clean energy. Prime Minister Narendra Modi is banking on renewables to fight climate change and has set an ambitious target of increasing India’s clean energy capacity by more than fivefold to 175 gigawatt by 2022.

“Pro-renewables policies and strong efforts by the current government have encouraged a massive scale-up for the renewable energy in India,” said Manish Begrajka, executive director at investment banking firm Euromax Capital Ltd. “This has not only created a conducive environment which is sustainable, but also made investments into Indian renewable energy sector commercially attractive.”

Hero Future, with operating assets of 260 megawatts across wind and solar energy, has already hired investment bank Jefferies Llc to advise it on the stake sale.

Hero Future aims to use the funds to expand its capacity to 2GW by 2020, said one of the two people cited above. In February, the company raised Rs.300 crore through the so-called certified climate bonds to expand its wind portfolio. Climate bonds or green bonds are an asset class linked to climate change solutions.

Established in 2012, Hero Future Energies has a presence in nearly 10 states of India. The company is currently developing 150MW in wind power assets and about 90MW in solar power assets. It has a pipeline of 1.1GW of wind projects till 2018-19 and estimated to secure more than 500MW in solar projects under state and central bidding by 2015-16. In the rooftop solar segment, the company has plans to implement 100—200MW in projects by 2018-19.

CDC Group and IFC already have an exposure to India’s renewable energy sector. While IFC has a committed portfolio of around $500 million (including equity and debt) in renewable energy projects in India, CDC has so far made only one investment in this segment in India so far. In 2013, the CDC Group had invested $25 million in Green Infra Ltd, one of India’s largest renewable power firms.

In October, Goldman Sachs-backed ReNew Power Ventures Pvt. Ltd raised $265 million in fresh equity from investors, including sovereign wealth fund Abu Dhabi Investment Authority. On 22 March, ReNew Power said the Overseas Private Investment Corp., the US government’s development finance institution, will provide debt financing of up to $250 million for its solar projects.

On 9 March, Canadian pension fund Caisse de dépôt et placement du Québec pledged an investment of $150 million in India’s renewable energy sector. The fund said it plans to invest the amount over the next three to four years, targeting hydro, solar, wind and geothermal power assets. It also intends to partner with select renewable energy companies in India.

The sector has also attracted strategic investors. In 2015, Sembcorp Renewables, a unit of Singapore’s Sembcorp Industries Ltd, acquired 60% in IDFC Alternatives Ltd-backed Green Infra Ltd for Singapore $227 million. “I am of the view that the project momentum created by bankable power purchase agreements offered by government, the participation of both conventional developers and Indian corporates and the substantial supply of capital from foreign investors have made India a mainstream market for renewable energy investment,” said Euromax Capital’s Begrajka.