Power companies plan to raise $10 Bn from primary market & pre-IPO placements

By SiliconIndia   |    7 Comments
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Mumbai: In India, among at least half a dozen leading power generation firms, the new pulse in the industry is on fund-raising. In 2008 majors, including Reliance Power, Sterlite Energy, JSW Energy and Essar Power, will raise around $10 billion from the primary market and through pre-IPO placements, by offloading equity, reported The Economic Times.

Four private power majors including Sterlite Power, JSW Energy, Essar Power and Larsen and Toubro Power Development are expected to go public in 2008, apart from Reliance Power's proposed public offering to raise $3 billion. According to industry experts, these companies by diluting 20-25 percent stake, are capable of raising around $2 billion each through IPOs and pre-IPO placements.

Currently some have begun talks with global private equity funds for pre-IPO placement. Vedanta group company Sterlite and Sajjan Jindal-controlled JSW plan to raise $1 billion through private placements. Essar Power plans to offload 10 percent stake to private equity investors to raise up to $700 million.

With companies raising a total of $8 billion Indian bourses saw a slew of IPOs in 2007. Power-related companies contributed just over a $1 billion. While the state-run Power Grid Corporation raised Rs 2,984 crore, Power Finance Corporation (PFC) raised Rs 997 crore. Recently, BGR Energy, a Hyderabad-based power, engineering, procurement and construction (EPC) company by divesting 12.69 percent stake, raised Rs 440 crore.

Overtaking DLF's IPO in 2007, Reliance Power's IPO will become the largest public offering. The Anil Ambani-owned power company is expected to raise around Rs 12,000 crore through the IPO. The company has filed the Red Herring Prospectus (RHP) with the Registrar of Companies.

"The rapidly-growing Indian economy requires an investment of around $120-150 billion over the next five years in the energy sector. Strong private sector participation is required to complement public sector and to bring in the required capabilities and technologies. Policies have increasingly recognised the need to promote private investment," said a KPMG-CII report.

According to Kameswara Rao, leader of power practice, PricewaterhouseCoopers, the valuations of power companies look somewhat extended. Under the 11th Five Year Plan, by keeping the goal of providing power to all by 2012, the government plans to add up 80,000 MW capacity. The orders for 56,000 MW generation capacity has already been placed, while that for the remaining capacity would be placed by March 2008. India is planning to add 8 lakh MW by 2030. In the coming years, as the country faces a power shortage of 22,000 MW, the importance of power generation firms will be significant, says industry analysts.

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