The Venture Intelligence Blog

Businessworld has recently covered the crisis in the Indian power sector and the problems facing private sector investments in the sector. From the Cover Story titled "Burn Ambitions": If there is an apparent sliver of hope, it’s over discoms — the Cabinet Committee on Economic Affairs’ nod to recast their debt of Rs 1,20,000 crore. Matters had come to head. In the absence of cost-reflective tariffs (a political hot potato), discoms financed the interest on loans through more of the same. The RBI asked banks to apply the brakes on loans to discoms. “We have decided to stop generation, but we cannot afford to take a deferred payment as 80 per cent of our cost (of power) is for buying coal. We pay CIL through a letter of credit and cannot afford this. We can’t compromise,” says NTPC’s Choudhury. ...According to Crisil, nine states — Tamil Nadu, Andhra Pradesh, Rajasthan, Punjab, Haryana, Bihar, Uttar Pradesh, Madhya Pradesh and Jharkhand — account for 85 per...

Writing in the Business Standard , hedge fund manager Akash Prakash points out some of the India-specific challenges in investing into this sector. The reality is that the Indian infrastructure sector does not have the size, financial muscle and market clout to fund the infrastructure this country needs. While power projects may still go ahead, as we have 4-5 large power developers with a combined $28 billion of market cap, $27 billion of market cap has to support everything else from roads to ports, airports, sanitation, etc. Again, the needs dwarf the capital, which can be raised. ...Thirdly, markets have ignored the sector, given the poor economics demonstrated. Most infra projects/developers generate no-free cash flow, have low ROE’s and are very susceptible to project delays and policy risk. Investors are tired of projects stuck in red tape or subject to the whims and fancies of ministers. Most of the large infra projects are also seen to be disguised bets on real estate, as their...

Economic Times has published a feature on the Moser Baer Group's foray into the power generation business. (The group recently raised PE funding from Blackstone for one of the ventures.) It’s as big a reinvention the Puris have undertaken as any. Over the next five years, the Puris plan to invest Rs 34,000 crore -- about 16 times the current revenues of Moser Baer India -- to set up 5,000 MW of power capacity across three mediums: thermal, hydro and solar. And they are doing all this outside the flagship company. ...For the Rs.34,000 crore investment required, the Puris are looking at a debt-equity ratio of 75:25. However, the banks they are talking to are asking for 30% equity, as Moser Baer is new to the power business. At 30%, the equity component is about Rs 10,000 crore. So far, it has got Rs 1,350 crore from Blackstone. The Puri family has brought in Rs 700-800 crore, most of it providentially realised from the sale of personal land just before Lehman Brothers collapsed, tak...