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Indian Banks See Highway Toll-Like Cash in Solar, Welspun Says

According to reports, Indian banks are willing to finance solar power projects if they see the potential to turn them into cash-generating assets like toll roads, said Welspun Energy Ltd., India’s biggest developer of photovoltaic plants.

India’s first major batch of solar plants are nearing completion, encouraging banks to explore ways to securitize their cash flows the way they do with tolls from paid-for highways and other infrastructure projects, said Vineet Mittal, managing director of the energy unit of Leon Black-backed Welspun Group.

The securitization may indicate a maturing of the solar industry in India, which manufacturers like First Solar Inc. (FSLR) and Suntech Power Holdings Inc. (STP) are expecting to emerge as one of the fastest-growing markets as European demand falters due to dwindling clean-energy subsidies and the debt crisis. During the last year, one of the biggest challenges in India faced by developers trying to build the nation’s first 1,100 megawatts of solar plants has been convincing lenders to participate in an industry still in its infant stages.

“While solar energy generation is a relatively new sector for banks, they’re interested in lending to those who have established credibility and lived up to their commitments,” Mittal said in a Dec. 26 interview in Mumbai.

Welspun Energy has been approached by a lender proposing to securitize the cash earned by its solar plant from selling power after three months of operation, Mittal said, declining to identify the bank. In securitization, the plant’s anticipated revenue is pooled to create a new financial product to be sold to investors.

Solar power plants, like other infrastructure projects, lend themselves to securitization because once built, their cash flows are steady and predictable, Vinayak Mavinkurve, group head of project finance at Infrastructure Development Finance Co. (IDFC), one of India’s biggest lenders to power plants, said in a July 18 interview.

“When you compare a wind, solar or road asset, you know what the toll is if your car passes through, you know what the solar or wind price is for every unit that’s delivered,” Mavinkurve said. “It’s like an annuity. What’s your variable? It’s the amount of wind or sun or traffic flow on a highway.”

Welspun’s Mittal said private equity firms are also showing a “huge interest” in Indian renewable energy projects, especially solar and wind. Apollo Global Management LLC, Leon Black’s private-equity firm, bought a 22.5 billion rupee ($422 million) stake in parent Welspun Group in August for its biggest India deal to date.

Welspun Energy aims to have 500 megawatts of solar and wind capacity in India by 2014 and is planning its first wind farm investments, Mittal said. Sites have been obtained in Karnataka, Rajasthan and Gujarat states for those.

Welspun Energy has won 55 megawatts of photovoltaic capacity in two central government auctions, more than any other company. It also signed an agreement with Gujarat state to build as much as 100 megawatts of solar plants and plans to bid for new projects in Karnataka, Rajasthan and Orissa states.

Its first 15-megawatt plant in Gujarat was completed in October with financing from ICICI Bank Ltd. (ICICIBC) It expects to complete a 5-megawatt project in Andhra Pradesh this week that is financed by the Indian Overseas Bank.

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