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DLF bid to hive off wind power assets gets response

According to reports, at least four suitors have emerged for the wind power business of DLF Ltd, India’s largest real estate developer, which is seeking to raise money by divesting assets that aren’t integral to its main business.

Green Infra Ltd, a company promoted by IDFC Private Equity Co. Ltd; Sumant Sinha’s ReNew Power Ventures Pvt. Ltd, Swraj Paul’s Caparo Group; and Orient Green Power Co. Ltd have evinced interest in acquiring the business, people familiar with the situation said.

DLF plans to sell assets that are “non-strategic” to its main business of property development as it seeks to reduce debt, which was Rs. 22,758 crore at the end of December. According to a Motilal Oswal Securities Ltd research report dated 13 February, DLF expects to raise Rs. 1,000 crore from the sale of its wind power business.

To hive off the unit, the company has hired audit and consulting firm Ernst and Young (E&Y).

This is the second time DLF has put its wind assets on sale. A similar attempt was made earlier, as reported by Mint on 1 April 2009, but had to be abandoned because of differences over valuation.

DLF has an installed capacity of 228.7 megawatts (MW) and owns wind farms in Gujarat, Rajasthan, Tamil Nadu and Karnataka.

“There is considerable interest in DLF’s wind assets. Some of the firms that have evinced interest to Ernst and Young are Green Infra, ReNew Power, Caparo Group and Orient Green Power,” said a person aware of the development, requesting anonymity.

Another person familiar with the situation, who also didn’t wish to be identified, confirmed E&Y’s mandate, but declined to comment on the companies mentioned above.

There have been indications that the Indian wind power sector is looking to consolidate. The Economic Times newspaper reported on 13 February that DLF is banking on the sale of Aman Resorts and its wind energy venture to reduce debt. Even Lanco Infratech Ltd has decided to exit the segment.

According to a company presentation made to analysts, DLF reduced its net debt by Rs. 169 crore at the end of the fiscal third quarter to Rs. 22,758 crore from the previous quarter (July-September), when it had reported net debt of Rs. 22,927 crore. The company closed two information technology park deals during the the third quarter valued at Rs. 785 crore.

A 13 February report by Nirmal Bang Institutional Equities Research said: “Despite such non-core asset sales, cash flow after considering interest costs and capex remained negative at Rs. 6 billion for 9MFY12 (first nine months of fiscal 2012), indicating worsening cash flow situation from core operations.”

The report added: “The management has given guidance regarding debt reduction of Rs. 50 billion in the coming quarters as and when it closes the deal for its hospitality and wind power businesses.”

While Caparo Group couldn’t be contacted, spokespersons for DLF, E&Y and IDFC declined to comment. Questions emailed to Orient Green Power on Saturday hadn’t been answered at the time of going to press on Tuesday.

“We are very busy working on our pipeline of projects and hence are unable to comment on these questions,” Sumant Sinha, chairman and chief executive officer of ReNew Power Ventures, said in an emailed response to questions from Mint. “Acquisition opportunities are not very interesting as we are seeing a very good pipeline of our own projects.”

Interest in wind power generation has been aided by the government’s offer of fiscal incentives, including tax breaks for 10 years and depreciation benefits of 80% on investment in the first year of a project’s operation, besides a chance to earn carbon credits.

While there is interest in developing wind energy sources from conventional power generation utilities, the funding of such efforts has become a concern. It takes capital expenditure of Rs. 4.2-4.5 crore per MW of power generated through coal-based or gas-based projects, compared with wind-based projects requiring Rs. 6-7 crore per MW.

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