According to reports, which power-generation company with operations in India delivered the best returns in a post-Lehman Brothers world? That distinction does not belong to sector heavyweights such as Tata Power, Reliance Power or Suzlon Energy. A little-known, 260-crore company, operating primarily in the clean energy space, has left these powerhouses trailing on shareholder returns since January 2009, by being a contrarian in the hydel power space.
As promoters of hydropower projects, facing different forms and degrees of distress, make a beeline for the exit, Greenko is keenly waiting for them there. Since 2006, this Hyderabad-based company has bought about 30 hydel projects, at various stages of clearances and completion, with a combined capacity of 725 mw.
Riding on such distress pick-ups, facilitated by an equity base of 233 million (about 1,600 crore) as of March 2012, Greenko has built a portfolio of 35 hydel projects with an installed capacity of 785 mw. Its equity investors include private equity fund TPG and, most recently, the sovereign wealth fund of Singapore. Standard Chartered and an arm of GE have extended loans to it.
According to Greenko’s co-founder and CEO Anil Chalamalasetty, it is buying hydel projects when few others are because of four reasons. One, it is serious about being a power developer with scale. Two, it has funds, mostly raised from outside India. Three, its chosen strategy is to buy projects in distress by acquiring “matured licences”, which have obtained all or most clearances. Four, most of these are very small projects (below 100 mw).
“Players such as Greenko have the advantage of access to cheaper funds in global markets, which helps them aggressively chase buyouts of stressed power assets,” says CM Ramesh, executive director of Rithwik Projects, an EPC (engineering, procurement and construction) company that, faced with a funds crunch, sold two hydel projects of 25 MW each to Greenko.
According to AV Kameswara Rao, executive director of PricewaterhouseCoopers, a consultancy, new renewable energy companies such as Greenko and Mytrah (Energy) have good project-management capability. “And they acquire projects incrementally,” he says. “Instead of making statements about wanting to add 1,000 mw by 2020 or so, they move from project to project.”
Chalamalasetty says this strategy of Greenko feeds off the recent construct of the hydel industry, where a host of small companies, many of them mere contractors, obtained licences with the sole intention of selling them off for a profit. “Typically, the original player who got a licence and clearances may have spent Rs 15-20 lakh on a project and he sells it for Rs 40-50 lakh,” says Chalamalasetty. “A guy like me, who is interested in investing Rs 8-9 crore per mw, is not worried about spending that Rs 20-40 lakh extra. I save two to three years in time.”
For Chalamalasetty, time is money. Greenko doesn’t have to go through the painstaking, time-consuming and corruption-ridden process of obtaining clearances. “I want to deploy my capital effectively and quickly,” he says.
Chalamalasetty and Mahesh Kolli, two NRIs from Andhra Pradesh, set up Greenko in 2005. The company is registered in the Isle of Man, a tax haven. In November 2007, it raised $50 million on the Alternative Investment Market (AIM) of the London Stock Exchange, a sub-exchange that has less stringent listing and disclosure norms. These antecedents – Andhra Pradesh, Isle of Man and AIM – do stir whispers about links with state politicians, though so far no evidence has emerged.
For the year to March 2012, Greenko Group reported revenues of Euro36.9 million (Rs 260.7 crore) and a net profit of Euro11.5 million (Rs 81.2 crore). In its 2011-12 annual report, its chairman Y Harish Chandra Prasad said Greenko currently has the balance sheet capability to hit 1,000 mw of capacity in 2015.
The projects Greenko chooses to buy have some typical traits: they are small – of 5-15 mw – and there are a bunch of them within a 100 km radius. Last month, it announced a cluster of four projects, with a cumulative capacity of 310 mw, in Arunachal Pradesh – the current epicentre of hydel distress of the kind that Greenko has pounced on. “Our ideal size is 20 mw, which we can commission in 24-30 months,” says Chalamalasetty. “We want to implement projects in clusters for better management and local ecosystem.”
Greenko’s existing hydel capacity is mostly concentrated in Karnataka and Himachal Pradesh, with a small number in Sikkim and now in Arunachal. “Our intention is to work in those states that offer good renewable resources, as well as a supportive economic and regulatory environment for renewable energy,” says Chalamalasetty.
“They (new renewable energy companies such as Greenko) are fairly opportunistic,” adds Rao of PwC. “Apart from trying to diversify risk, they cherry-pick projects. All commercial contracts are tied up or they have a good visibility on these projects.”
According to Chalamalasetty, the regulatory and operating environment in hydel is extremely challenging, and the opportunity cost of delays can add 20% to a project’s price every year. For a company to do well, he adds, its management has to be dynamic in raising capital and taking decisions. “We can’t say we will initiate a platform, and then go and find money, and inject the capital as and when required,” he says. That has been the bane for many players – and, for now, a boon for Greenko.