SBG Cleantech taps Brookfield for up to $600 mn funding

MUMBAI: Softbank backed green energy company SB Cleantech has approached Brookfield for a $500-600 million funding infusion to complete their ongoing and pipeline projects in India and US, said people aware of the development. Both sides are in negotiations to finalise the exact structure and quantum which is expected to be a combination of a convertible instrument like mezzanine debt and equity, they added.SB Energy, the renewable energy arm of SoftBank, initiated a formal fund raising exercise by mandating Barclays and Bank of America Merrill Lynch to help raise $500-$750 million from potential new co-investors in SBG Cleantech, it's 80:20 joint venture with Bharti, ET had reported in its May 29th edition.“The need for funds is immediate and so they are open to various structures. They even unsuccessfully attempted to raise a bond. They have approached several with an offer to dilute around 30% of SB Energy’s stake in the joint venture,” said a global clean tech investor privy to these discussions. However, most industry participants believe parent Softbank may eventually sell a larger chunk, even majority to bring on board large institutional investors to deal with its own liquidity challenges.ET in January reported that SoftBank was in talks with SWFs in the Middle East and Asia, some of whom are limited partners (LPs) of SoftBank Vision Fund, besides Silicon Valley-based technology giants that are big buyers of clean energy for an investment, and was even open to selling a majority stake in the venture. This was part of an ongoing review as parent SoftBank was facing record losses and liquidity pressures.76721257The company’s management in India led by CEO Raman Nanda has always maintained that it will not divest the business and is committed to growing it. On offer is the JV's entire global portfolio, except Japan where SoftBank’s renewable projects are owned by a separate entity.Brookfield declined comment. “SB Energy is exploring potential co-investment partnerships to accelerate growth of its leading renewable energy platform. Given recent and growing interest in ESG investments at scale, SoftBank decided to take further steps towards identifying a growth partner. SoftBank is committed to the long-term success of SB Energy,” a Softbank spokesperson said.Bharti did not respond to ET’s detailed queries.SBG Cleantech predominantly has operating assets in India but also has assets across the US, Latin America and Middle East through acquisitions and bidding.Brookfield Renewable Partners operates one of the world’s largest publicly-traded renewable power platforms with a portfolio consists of approximately 19,300 MW of capacity and 5,288 generating facilities in North America, South America, Europe and Asia. With the acquisition of Terraform Global, the emerging market yieldco of former Sun Edison, Brookfield got a 300 MW footprint in India. Subsequently, it also took over two wind farms of Axis Energy that gave them an additional 210 MW of generating capacity. Earlier in the year, Brookfield was in active discussions to acquire a significant stake from Goldman Sachs in ReNew Power but those discussions did not yield any results.There is no guarantee that the ongoing Brookfield SB Energy conversations will also lead to an investment, cautioned the sources mentioned above.In 2015, with huge fanfare, SoftBank had teamed up with Bharti Enterprises and Taiwan’s Foxconn Technology Group to form a 70:10:20 alliance to build solar and wind parks and subsequently start manufacturing panels in India to promote Prime Minister Narendra Modi’s push for clean energy and Make in India initiatives. Together they were to invest $20 billion over a 10-year period to set up 20,000 MW, or 20 GW, of clean energy projects, subject to certain conditions. Later, Foxconn exited without investing and it became a 80:20 alliance.In India, the company has aggressively chased central government projects participating in auctions by Solar Energy Corporation of India (SECI) and NTPC to bulk its portfolio.PORTFOLIO CHALLENGESAccording to industry peers, the company’s near-$1-billion leverage in operating projects could be a handicap in attracting investments. “The problem with their portfolio is on one hand their PPAs are very aggressively priced but their costs are at least 25-30% higher than most industry peers,” observed a CEO of rival green energy company familiar with the assets. “That in turn impacts the IRR. They believe it’s a technology based utilities company and expect such valuations but that’s a hard sell.”The company claims to have 7.7-gigawatt pipeline of projects in India and will reach its 20-gigawatt target within the next five years. Currently, as per the management, it has nearly 2 GW operating renewable energy capacity in the country, 2 GW under construction, and additional 3,700 MW under “active development” with contracts in hand.As on December 2019, the joint ventures partners had made equity financing of $737 million in SBG Cleantech with around $590 million coming from Softbank alone.Another $1.2 billion of equity was required then for the pipeline and operational projects to get completed.In April, SB Energy, emerged as the largest bidder when NHPC’s floated tenders for solar projects and secured 600 megawatts of capacity at Rs 2.55/kwh. Interestingly, Axis Energy Ventures, backed by Brookfield Asset Management, grabbed 400 megawatts in the same competitive auction. Its partnership with NHPC is aimed at providing affordable, round-the-clock renewable energy in a hybrid combination of solar and hydro.In the US, too, the company is looking at a gigawatt of solar parks by next year out of the 1.7 GW platform that it acquired in 2019. But supplier shutdown in China, duty hikes on imports are expected to impact rollout plans for most players.

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