India: $290m Shanghvi deal boosts Modi


February 23, 2015

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Dilip Shanghvi is one of the biggest hitters in Indian business.

He founded Mumbai-headquartered Sun Pharma in the state of Gujarat in 1983 with five products to treat psychiatric illnesses. He has since grown it both organically and by acquisitions into one of the world’s largest pharmaceutical firms. This has made Shanghvi the richest person in India — depending on how you work it out!

And in the last week Shanghvi has taken a big stride into the wind sector, by agreeing to buy a 23% stake in developer and turbine maker Suzlon for $290m. It is an major deal as it shows the Indian government’s renewables drive is attracting serious investors.

This deal helps Suzlon to cut its debts and gives it the liquidity the pursue opportunities in India, as well as in markets like Brazil, China and the US. As part of the deal, Shanghvi’s investment firm will form a joint venture with Suzlon to build 450MW of wind power.

It follows another major deal last month, as Suzlon sold German subsidiary Senvion to private equity house Centerbridge for €1bn.

Shanghvi is not the only investor to make a significant commitment to wind in India in the last week. We saw a raft of announcements to tie in with the first major clean energy conference in India, the Renewable Energy Global Investors Meet & Expo.

Private investor Actis committed $230m to create an Indian renewable energy platform, Ostro Energy, to build 800MW of renewables capacity in the country by 2019.

US solar giant SunEdison pledged to build 15GW of wind and solar in India by 2022.

Even the governments of China, Germany and the UK pledged to back initiatives. And the State Bank of India pledged to lend $12bn over five years to support development of 15GW of renewables.

All of these announcements indicate that the renewables strategy being pursued by prime minister Narendra Modi since the election in May 2014 is starting to attract significant investment. Modi has set targets, but progress has not floundered at that stage.

That said, commitments from firms to build in India are one thing, but we will need to see how much they actually deliver in a country that still has major challenges to overcome.

One of the most telling contributions came from Jim Hughes, the chief executive of First Solar, which has also committed to build 5GW of solar by 2019. He said solar schemes in some Indian states are not financially viable.

This is in part due to the poor finances of the electricity companies who would buy renewable power; and also the slow pace at which some states make land available for renewable energy projects.

These concerns are equally valid for wind. If Modi is to deliver on India’s target for 100GW of wind capacity by 2022 then practical challenges must be overcome. Targets only get you so far.

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