Sale Of Indian Assets: Moving Decisively Towards A Greener Future
SCI will sell all of its Indian coal-fired power plants to an Omani party for S$2.1b via a 15-year Deferred Payment Note. The acquisition price implies an annualised 2022F PE of 10.2x and P/NTA of 1.03x, which we view as largely fair given the current market environment around coal-related assets. We view this sale in a favourable light given the strategic imperative for SCI to progress towards being a greener company. Maintain BUY. Target price unchanged at S$4.10.
WHAT’S NEW
• Riding itself of brown energy. Sembcorp Industries (SCI) has announced that it will sell 100% of Sembcorp Energy India (SEIL), operator of two supercritical coal-fired plants totalling 2.6GW, to Tanweer Infrastructure for a consideration of INR117b or S$2.1b. The acquisition price implies an annualised 2022E PE of 10.2x and P/NTA of 1.03x, which we view as largely fair given the current market environment around coal-related assets. The price also implies S$0.8b/GW of gross installed capacity, which is towards the high end of comparable transactions of S$0.5 to 1.0b/GW.
• Not cash, but a Deferred Payment Note (DPN). Importantly, SCI will not get cash up front but instead the consideration will be via a 15-year Deferred Payment Note which will bear an interest rate of 1.8% p.a. plus the Indian government 10-year bond yield spot rate, less a greenhouse gas emissions intensity reduction incentive rate. Given the materiality of the divestment, SCI will need to convene an EGM by Nov 22 to seek shareholders’ approval with expected completion of the transaction in 2Q23.
• The buyer is Tanweer Infrastructure, which is indirectly owned by a consortium led by the Oman Investment Corporation (OIC), a leading Omani private equity investment company and importantly SCI’s long-term partner in Oman. Both OIC and SCI jointly developed and operated the country’s US$1b Salalah Independent Power and Water Plant since 2009.
• This is a strategically important sale as it meets SCI’s previously stated objectives of decarbonising its portfolio of assets as well as deconsolidating its debt. We view the P/B divestment multiple of 1.0x P/B as largely fair with the price having been arrived at after a competitive process which SCI conducted over the past few months. During the analyst briefing, SCI’s management emphasized that the buyer is a long-term partner which it will be able to work with for future decarbonisation projects given its deep pockets.
