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Renewable energy firms explore listing in Singapore

According to reports, several Indian renewable energy firms are exploring the option of listing on the Singapore stock exchange (SGX) as they look for better valuations and also seek to benefit from the concept of “business trusts”.

The companies include IL&FS Wind Power Trust, Mytrah Energy Ltd, ReNew Power, the Greenko Group and IDFC Ltd’s Green Infra Ltd.

Unlike companies, business trusts aren’t required to show profits before distributing available cash funds. As a result, investors can get returns even before profits are generated. This is useful for businesses that generate high cash flows, but see a substantial depreciation of their assets—in this case, capital-intensive renewable energy projects.

“IL&FS’s wind power business, Mytrah Energy and Greenko Group are evaluating a Singapore listing as valuations in Singapore are still attractive,” said a person aware of the development who spoke on condition of anonymity.

The city-state is the only place in Asia where business trusts are allowed.

“IL&FS’s wind power business is looking at listing there due to the benefit of business trusts. Others are also evaluating this option,” said a second person aware of the development, who also didn’t want to be identified.

An external spokesperson for Mytrah Energy declined to comment citing unavailability of the concerned executive at the company.

A ReNew Power spokesperson said: “As of this moment, we can neither confirm nor deny the basis of the putative information.”

An IDFC spokesperson said the company wouldn’t respond to speculation.

Hari Sankaran , vice-chairmen and managing director of IL&FS, didn’t respond to an email, phone messages and calls seeking comment. An email sent to a spokesperson of the Greenko Group in London on Tuesday remained unanswered.

Kameswara Rao, leader (energy utilities and mining) at audit and consulting firm PwC India, said, “Renewable companies still require a lower cost funding and a high leverage, which the Singapore listing through a business trust permits them. Such a listing is also a new source of capital, and growth-focused renewable companies being capital-intensive will need strong funding options.”

Lawrence Wong, head of listings at SGX, declined to comment on the listing of the specific companies in an email response. “As a listing venue, SGX is supported by more than $1.8 trillion of assets under management in Singapore where the regulatory regime is transparent and trusted,” he said.

“We also have innovative investment structures such as the business trust to meet the needs of issuers. Via the business trust structure, companies with assets in areas such as infrastructure can unlock their infrastructure value and raise funds for re-investment while offering investors opportunities for direct exposure to cash flow generating assets,” Wong said.

“We currently have 37 SGX-listed REITs (real estate investment trusts) and business trusts with a combined market capitalization of more than $60 billion,” he added. REITs refer to business trusts in the real estate sector.

The listings are being planned on the lines of the Religare Health Trust listing in 2012.

“The listing of Religare Health Trust on SGX in October 2012 was significant as it is Singapore’s first India-based healthcare business trust. We believe it has enhanced the profile of Singapore, SGX and our business trust regime amongst potential Indian issuers,” Wong added.

Reliance Communications Ltd had a similar plan, but shelved it.

Most investors have shied away from Indian power projects that use conventional fuel such as coal and gas, but private equity firms have shown considerable interest in the renewable energy business that includes wind and solar power.

A third person aware about the listing plans of Indian renewable energy firms in Singapore said: “With AIM not doing well for the last two years, listing on the Singapore stock exchange is one of the routes explored by the Indian firms.”

AIM is the Alternative Investment Market of the London Stock Exchange, another destination for small companies, including so-called early stage ones.

India has an installed power generation capacity of 2,23,625.6 megawatts (MW), of which 12.3%, or 27,541.71MW, is renewable energy capacity. 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- or gas-based projects, compared with wind-based projects requiring Rs.6-7 crore per MW.

Sunil Kumar, an associate director at PwC India, added that some renewable energy companies seeking to list have been on an acquisition spree to build up scale.

India’s National Action Plan on Climate Change recommends that the country generate 10% of its power production from solar, wind, hydropower and other renewable sources by 2015, and 15% by 2020.

“Renewable companies in India are largely backed by infrastructure funds, sovereign funds and green funds,” Kumar said.

“The idea is to move operating assets under a Singapore trust, allowing equity to be raised at a higher multiple to earnings as these assets have been de-risked and provide predictable cash flows.”

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