ReNew Power to get up to $250M in debt financing from OPIC

Recently, it raised $265 million from Abu Dhabi Investment Authority.

Renewable energy producer ReNew Power Ventures Pvt Ltd has signed an agreement with US government’s development finance institution Overseas Private Investment Corporation (OPIC) for debt financing of up to $250 million, according to a press statement.

OPIC will provide the financing facility to be used by separate special purpose vehicles for the development, construction and operation of solar photovoltaic projects awarded under Indian government’s Jawaharlal Nehru National Solar Mission in the country. 

The company will use the capital to construct up to 400 megawatts (MWs) of solar power projects in India across multiple states.

“ReNew Power will have an edge in the solar competitive bidding scenario through this long-term OPIC facility,” Sumant Sinha, chairman and CEO of ReNew Power, said in the statement. 

"OPIC is proud to partner with ReNew Power in delivering innovative clean energy solutions throughout India. By supporting the construction of solar power projects, OPIC looks forward to helping ReNew Power meet India's growing energy needs while reducing the country's carbon footprint,” said Elizabeth Littlefield, OPIC's president and CEO.

In October, ReNew Power raised $265 million (Rs 1,722 crore) in a fresh funding round led by Abu Dhabi Investment Authority (ADIA), which is one of the two sovereign funds of the UAE and represents the Emirate of Abu Dhabi. 

While ADIA put in $200 million to pick up a significant minority stake, existing investor Goldman Sachs also participated in its fourth round of funding in the company through an additional $50 million commitment.

Another existing investor Global Environment Fund added up to $15 million to its existing investment.

The renewable energy sector – especially wind and solar power – has attracted a clutch of financial and strategic investors, lured by opportunities in the sector where the government has set ambitious targets to cater to the rising demand for electricity.

The Indian government has set a goal of achieving 100 GW of solar and 60 GW of wind power generation capacity by 2022, up from around 4GW of solar power and about 23 GW of wind power.

Founded in 2011 by Sumant Sinha, ReNew Power has now more than 2,400 MWs of clean energy assets. Currently, it has presence in nine states (Gujarat, Haryana, Madhya Pradesh, Rajasthan, Maharashtra, Karnataka, Telangana, Andhra Pradesh and Jharkhand) across the country. The company is backed by marquee investors like Goldman Sachs, ADIA, Asian Development Bank and Global Environment Fund.

In the last one year, ReNew Power has ramped up its solar energy portfolio. It recently signed Power Purchase Agreements (PPAs) for four solar ground mounted projects with a combined capacity of 286 MW in Telangana. Further, it has won bids in Karnataka (180 MWs) and Jharkhand (522 MWs) for which the PPAs will be signed shortly.

It has Rs 4,000 crore of equity capital with over Rs 8,000 crore of debt sanctions. With this new round of funding, ReNew Power has an asset base in excess of $1.5 billion and expects to push this by one-third by the end of this year.

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Understanding Government of India’s Income

Here is our explainer video on Government of India’s Receipts

The video explains the various sources of Government of India’s income in detail (Tax Revenue, Non-Tax Revenue & Capital Reciepts).

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Multinational foreign banks exiting India to protect profitability

YV Reddy, the former governor of Reserve Bank of India (RBI), once lamented that global financial conglomerates are "larger and, perhaps, more powerful than some of the central banks."

Today, that may not necessarily be the case and the possibility of these banks becoming a dominant force in the Indian banking space seems to have faded. Global banks have surely gotten big in India — over the last 15 years, the total advances of foreign banks in India have doubled every five years from Rs 75,318 crore in March 2005 to Rs 1.63 lakh crore in 2010 and to Rs 3.27 lakh crore in March 2015.

But that's just half the story. The real story is the slow but sure slide of foreign banks' market share. From 6.55% in 2005, foreign banks' share of advances dropped to 4.65% in 2010 and to 4.41% in 2015. In January, the UK-based Barclays shut down its equity capital market and broking business in India, continuing a trend of full or part exit of foreign banks since 2009.

In the last five years, Deutsche Bank has sold its credit card business, Barclays has shut its retail banking business; Swiss lender UBS has given up its banking licence and so did US-based multinationals Morgan Stanley and Goldman Sachs; Bank of America-Merrill Lynch sold its wealth management business to Julius Baer and Dutch banking group ING sold its Indian operations to homegrown Kotak Mahindra Bank.

The exodus continued in 2015 with British bank RBS, which in 2013 shut 23 of its 31 branches in India, saying it will no longer continue in the country. Late last year, Standard Chartered reduced by a quarter its staff in corporate and investment banking. HSBC, too, said it will shut down its private banking business.

The trend is clear. A fast-growing India has ceased to be a priority for multinational foreign banks since the financial crisis, as high capital and regulatory requirements at home have forced them to retreat into their domestic markets to save on costs and protect profitability. Bankers say this pullout from India is an indication of the demise of global banking as we knew it at the turn of the century.

"Big is not beautiful anymore in banking. People can tell me whatever they want but this global, anywhere, anytime model for banking is not possible or valuable anymore," Boris Collardi, CEO at Swiss private bank Julius Baer, told ET in an interview. Collardi said his bank saw the signs of this change early and shed it asset management, corporate investment bank businesses to focus solely on wealth management in the last 15 years because "we believe we can only be outstanding in one thing."

Tectonic shift

Indian bankers echo their global counterparts. Global banking, they say, is no longer practical. "There has been a tectonic shift in global banking post the crisis. Big, bulge-bracket banks have had to remodel themselves.

The diminishing return of large global banks does not justify their presence in India. The banking model has changed to a home country one," Rana Kapoor, MD at Yes Bank who spent 23 of his 36-year career at foreign banks, said. It's now back to basic banking. Higher capital requirements post Lehman Brothers' demise, intervening regulations for different geographies and pressure from governments to conserve capital in home markets have forced banks to be less ambitious.
RBS, for example, had to seek a £46-billion bailout from the British government post September 2008. "Speculative trading products and client advisory have become more expensive. Regulators have become tough. RBS, for example, went from one crisis to another after the government bailout — from the LIBOR fixing scandal to a mortgage scandal and a mis-selling scandal in the UK.

Everything has resulted in fines and higher costs, exploding the cost-to-income ratio," said a senior executive from the bank, explaining why it had to exit emerging markets like India. Collardi calls the capital requirements and regulatory "overhang" for different businesses "unbearable," joking that some of his counterparts who manage much bigger banks elsewhere across the globe have to deal with as many as 500 differently regulated activities worldwide.

"The cost of complexity of running a big bank today is also correlated to the number of regulators you need to respond to. Now, we have a lot of conflicting regulations. Everybody wants their bank to be locally capitalised, so we are getting into a new paradigm," he said. In fact, their dwindling power seems to have resulted in the RBI putting on back burner its plans to make foreign banks subsidiarise and list on the Indian stock exchanges.

Enduring turmoil

The recent volatility in global markets has thrown up some interesting comparisons as Indian private sector banks are being valued higher than their more-famed global counterparts.

In February, HDFC Bank, India's second-largest private lender by assets and the second-most expensive bank globally, overtook European banks like Deutsche, Credit Suisse and Societe Generale in market capitalisation. The market capitalisation of Kotak Mahindra Bank, with just 1% of Deutsche Bank's assets, was only $1 billion less than the German lender's; the difference was $24 billion a year ago.

India is the only country outside Europe where the German lender has retail banking presence, fuelling speculation it would discontinue these operations soon. However, in an interview earlier this month, Deutsche Bank's Asia Pacific CEO Gunit Chadha said there are no plans to shrink the Indian business. "Deutsche Bank India sale was never ever on the table....the global banking industry must reinvent its business models.

We ourselves have some challenges, which we are proactively addressing, but our commitment to Asia Pacific is strong and stays fully intact," Chadha said in the interview. Deutsche Bank has 17 branches in India currently with a Rs 5,000 crore mortgage book and `15,000 crore in wealth management. Last year, it sold its mutual fund business to Pramerica Mutual Fund.

US banks are also not immune. In December 2015, USbased Citibank was widely reported to be cutting up to 2,000 jobs globally as it continues to restructure its business and exit markets too small to be meaningful for its business. It has already wound down its non- banking finance company in India in 2009.

The Opportunity

Private sector bankers say foreign banks are exiting India because of their own problems. "These banks had profitable businesses here providing crossborder linkages and dollar funding to Indian clients.

These linkages still exist and foreign banks still have a lot to offer in terms of transaction products for companies," said Romesh Sobti, MD at IndusInd Bank. Sobti believes there are many foreign lenders waiting to enter India and fill the gap left by these European banks.

One such lender, National Bank of Abu Dhabi (NBAD), started operations in October 2015 with an aggressive intent by buying $1 billion of Indian external commercial borrowings (ECBs) from The Royal Bank of Scotland (RBS). "We have strong capital and ratings position, relationship with Indian clients and have identified India as an important market. We have a clear strategy to grow in India," said Rajeev Pant, regional CEO, South Asia, at NBAD.

Indian private sector lenders are also ready to fill in the space vacated by the foreign lenders. Banks like Yes Bank, IndusInd Bank and Kotak Mahindra Bank, which do not have any overseas branch, will open units in the Gujarat International Finance Tec-City (GIFT), with the prospect of raising dollar-denominated funds, which were once the sole monopoly of foreign banks in India. "Through the financial centre, we can raise dollar funds.

We also have global alliances with more than 900 banks. We believe alliances, relationships and technology will be important in banking from here on," Kapoor of Yes Bank said. In the first few weeks of 2016, shares of global banks, including Deutsche, Standard Chartered,HSBC and even Wells Fargo, fell between 12% and 40% as investors questioned whether these banks have enough capital to support growth. The banks once seen as gorillas may be becoming pygmies, at least in India.

ReNew Power to get $250-million debt facility from OPIC

ReNew Power Ventures said on Tuesday that it has signed an agreement to receive debt financing of up to $250 million from the Overseas Private Investment Corporation, the US Government’s development finance institution.

The company said that the funds will be utilised to construct 400 MW of new solar power projects across India.

“ReNew Power will have an edge in the competitive bidding scenario for solar projects through this long-term OPIC facility,” said Sumant Sinha, Chairman and Chief Executive Officer, ReNew Power. 

ReNew Power has more than 2,400 MW of clean energy assets. Its projects are in nine States – Gujarat, Haryana, Madhya Pradesh, Rajasthan, Maharashtra, Karnataka, Telangana, Andhra Pradesh and Jharkhand. The company has investors such as Goldman Sachs, Abu Dhabi Investment Authority, Asian Development Bank and the Global Environment Fund.

Mahindra forays into dairy biz with Saboro brand

In a bid to tap the domestic milk market, which is pegged at Rs. 4 lakh crore, the agri-business division of Mahindra & Mahindra launched its branded milk – Saboro – in Indore on Tuesday.

The company’s plant in Dewas (near Indore, Madhya Pradesh) has a processing capacity of 10,000 litres of milk per day.

Ashok Sharma, President and Chief Executive, Agri and Africa & South Asia Operations, Mahindra & Mahindra, said the group’s entry into milk processing and marketing is part of a larger strategy to offer products in all the stages of the agriculture value chain, from farm equipment to the consumers’ kitchens.

Observing that the domestic milk market has many unorganised players, Sharma said an established name such as Mahindra & Mahindra can bring in quality to the customers.

In Madhya Pradesh, there is a lot of space for Saboro to grow and establish its footprint, “First we will get the milk business right in Madhya Pradesh and then look at other geographies,” he said.  

The company, under the Saboro brand, will offer pouch milk in four variants – Double Toned, Full Cream, Protein Rich and Cream Rich. The brand Saboro is derived from the Spanish word Sabor which means Taste.

 Sharma said that the company has put in place an advanced milk collection supply chain in around 70 villages near Indore where it works directly with farmers. The supply chain is tuned to reduce the bacteriological load in the milk so that it maintains its freshness and taste.

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Here’s why the pickup in India’s loan growth has few believers

Lenders seem to be benefiting mostly because a jump in short-term commercial paper rates is driving companies into their arms, say analysts.

Loans climbed 11.6%, the most since July 2014, in the year through 19 February, according to fortnightly data from RBI.

Mumbai: A rebound in loan growth to a 20-month high sounds like good news for Indian banks as they struggle to shake off the impact of a surge in bad debts. But a deeper dive into the reasons behind the revival shows it may be unsustainable.

Lenders seem to be benefiting mostly because a jump in short-term commercial paper rates is driving companies into their arms, according to Prabhudas Lilladher Ltd. A weakening Indian rupee is also making domestic borrowing more attractive, with local companies raising $2.5 billion via foreign-currency loans in 2016 in the slowest start to a year since 2012.

Any pickup in credit could help revive economic growth and improve performance at banks after profitability, as measured by return on assets, slumped to the lowest in at least a decade. With distressed assets at a 14-year high, lenders in Asia’s third-largest economy are under pressure from regulators to give priority to cleaning up balance sheets.

“A strong revival in credit growth is still some time away,” said Nitin Kumar, a Mumbai-based banking analyst at Prabhudas Lilladher. “One reason for recent improvement is substitution of offshore funds and money-market instruments with bank loans, while the other is some pickup in retail loan demand. We expect loan growth to stay at about 12% this year and the next.”

Loans climbed 11.6%, the most since July 2014, in the year through 19 February, according to fortnightly data from the Reserve Bank of India (RBI). That compares with a 20-year low of 8.88% in February last year.

Three-month commercial paper (CP) rates have surged 105 basis points this year to 8.8%, data compiled by Bloombergshow, as India’s capital markets regulator restricted the amount of money that mutual funds can invest in debt instruments such as commercial paper and corporate bonds.

The rupee has weakened 0.5% this year to 66.5050 a dollar in Asia’s worst performance, after completing a fifth straight annual decline in 2015. Morgan Stanley this month lowered its year-end estimate to 73 from 70, while predicting a fall to 69 by the end of this quarter. That’s weaker than the currency’s record low of 68.845 seen in August 2013.

Foreign-currency borrowings by Indian companies so far in 2016 have more than halved from the $6.38 billion seen in the same period last year, according to data compiled byBloomberg.

Nomura Holdings Inc. expects lending growth to stay around 11.5% this year, Sonal Varma, a Mumbai-based economist, said in a phone interview on Friday.

The pickup in loans “may also reflect increased working capital needs” of corporates, Varma and her colleague Neha Saraf wrote in a report earlier this month. “The upside in credit growth is limited. Hence, instead of cheering the uptick, we remain in a wait-and-see mode.” 

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Bankers see base rates falling after cuts in small savings interest rates

Bankers say reduction in interest rates of savings schemes will boost their ability to cut deposit rates.

The odds of banks paring base rates in April have increased given that interest rates on government savings schemes have been sharply lowered.

The government on Friday pared interest rates on most of its savings schemes, including public provident funds and social schemes such as the Sukanya Samriddhi scheme. Public Provident Fund rates were cut to 8.1% from 8.7% and those on one-year time deposit have been reduced drastically to 7.1% from 8.4%. The interest rate paid by the government on Kisan Vikas Patra (KVP), which matures in 110 months, has been cut to 7.8% from 8.7% till 31 March.

Following the cuts, these rates are now comparable with bank deposit rates and in some cases even lower. Banks have often complained that small savings schemes eat into their deposit base as the rates offered are high. Indeed, banks have pared deposit rates sharply in fiscal 2016 but have been stymied in their efforts to continue to do so by high rates in small savings schemes. The one-year deposit of State Bank of India (SBI), the country’s largest bank, now offers 7.5% and most banks’ one-year deposits offer similar rates. In contrast, the government-sponsored one-year deposit offered 8.4%, which now stands reduced to 7.1%.

Bankers said the reduction in interest rates of these schemes will boost their ability to bring down deposit rates and, thus, pass on the reduction in their cost of borrowings to customers by a reduction in lending rates.

“I think this is a very good move and will lead to better transmission of the Reserve Bank of India’s (RBI’s) policy rate cuts to lending rates,” said N.S. Venkatesh, executive director and chief financial officer, IDBI Bank.

The sharp slowdown in deposit growth of banks in FY14 to a 51-year-low of 11.4% underscored the problems faced by bankers in raising deposits. Part of this fall in deposits was attributed to the high interest rates offered by government schemes. Deposit growth stayed below 12% in FY15 and was 10% for the first 11 months of FY16, data from RBI showed.

RBI slashed its policy rates by a cumulative 125 basis points (bps) in calendar 2015 but banks pared lending rates only by 70 bps. “This is because high rates on small savings schemes make banks’ fixed deposits uncompetitive and, in turn, do not allow banks to reduce the cost of funds,” wrote Soumyakanti Ghosh, chief economist at SBI in a note dated 21 March. One basis point is one-hundredth of a percentage point.

The sharp reduction in small savings rate, coupled with an expected cut in policy rate by RBI in its April policy, could prod banks to bring down base rates faster. Currently, the lowest base rate in the industry is 9.3% offered by SBI. “The cut is extremely well timed. The adoption of MCLR (marginal cost of fund-based lending rate) itself would have brought down lending rates to new customers. Most banks would take a call at their ALCO (asset-liability committee) meeting in the first quarter on lending rates,” said an executive at a public sector bank requesting anonymity as he is not authorized to speak to the press.

RBI introduced the MCLR in December that would replace the base rate regime from April and will mandate banks to add a spread over their marginal cost of funds and a tenor premium for every maturity. MCLR is expected to reduce lending rates, especially for short-term loans.

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