Bain, KKR vie for 30% stake in Lanco's power projects

Last Updated: Wed, Aug 29, 2012 19:21 hrs

Lanco Infratech is engaged in talks with private equity firms Bain Capital and Kohlberg Kravis Roberts (KKR) to sell stake in its power business. Lanco has been trying to find a buyer for its power business since the beginning of the year. It had talked about raising around $750 million (Rs 3,892 crore) for a minority stake. This time, the company is known to have put a higher stake on the block — around 30 per cent in some of its generation projects.

“It is quite possible that a structured deal would happen,” said an investment banker aware of the deal. Structured deals are ones where the investor gets minimum assured returns from a deal. These returns are assured by the promoters of the company. An emailed query sent to the private equity firms elicited no response, while Lanco said it was currently in discussions with investors to raise up to $750 million in private equity. “This will be done at the power holding company level. We have mandated Macquarie to facilitate a deal,” it said in an emailed response.

Lanco also said it was planning to monetise non-core assets to bring some additional liquidity into operations. “We are also looking to monetise our wind portfolio and our roads business where our portfolio consists of three highway projects. Aside from this, we are looking for a strategic partner in our solar vertical,” the company said.

  • 4,480 Mw
    Total installed capacity
  • 8,800 Mw
    New power capacity under implementation
  • 4,400 Mw
    Capacity of that under construction
  • Rs 4,500 cr
    Total equity required for 3 projects under development
  • Rs 2,500 cr
    Equity already infused for the 3 projects
  • Rs 2,800 cr
    Owed to the company by four SEBs

Lanco Infratech had earlier indicated it planned to use the funds secured from a stake sale as equity for its new projects. “Lanco currently has around 8,800 Mw of new generation capacity under various stages of execution. Over half of this is already under construction and the balance has secured off-take agreements or fuel linkages, and is likely to attain financial closure over the next 12 months,” said a report by Edelweiss Securities, in its investment themes.

Lanco has an installed capacity of 4,480 Mw across coal, natural gas and hydel capacity, making it one of the largest private sector power manufacturers. Lanco Infratech has interests across the infrastructure sector, which include roads, engineering, procurement and construction, property development and natural resources like coal mines — both in India and abroad. The power sector, however, contributes to 51 per cent of its revenues.

The company’s power business has come under pressure after fuel availability affected both its coal and natural gas-based projects. State electricity boards also owe the company dues which total around Rs 2,800 crore, from Karnataka, Tamil Nadu, Uttar Pradesh and Haryana.

Lanco had earlier held talks with energy majors such as AES of the US and Gaz de France to invest in its power business.

Private equity deals in power have been few and far between. In September last year, renewable energy company ReNew Power could secure private equity funding of Rs 1,000 crore from Goldman Sachs.

In 2010, two infrastructure majors, GMR and GVK Power and Infrastructure, also raised funds from multiple rounds of private equity investment. Singapore-based Temasek Holdings and IDFC Private Equity invested around Rs 1,470 crore in GMR’s power venture. GVK raised Rs 1,498 crore the same year from three private equity investors, 3i India Infrastructure Fund, Actis and GIC.

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