Rural Electrification Corp. plans to buy stake in new power projects in India either independently or by setting up a private-equity company, three senior executives at the state-run lender to power projects said.
The move will help the company maximize returns on investments by directly taking part in India's expanding power sector. It may also enable the company to guide power utilities, both state-run and private, toward better managing their finances and operations amid a tight credit scenario, which in turn will benefit the lender.
Rural Electrification, currently, grants loans to its customers in the power sector and earns interest in return. The company plans to disburse 280 billion to 300 billion rupees in the financial year through March, and aims to raise up to $2.5 billion from overseas invesors in loans and bonds.
"The company may seek the board's approval for equity participation in power projects in the next two-and-a-half months," said a company executive, who didn't wish to be named. "There are a number of options for such equity participation."
The executive said Rural Electrification may form a private-equity company in a joint venture with overseas firms.
Private-equity firms such as SBI Macquarie Infrastructure Trust, IDFC Private Equity, and Kohlberg, Kravis Roberts & Co. have already invested in India's power sector, which the federal government estimates will need $300 billion to $400 billion between 2012-2017 to expand the nation's power generation capacity of 174.36 gigawatts.
The world's second-fastest-growing major economy plans to add 100 GW in the decade until March 2017 to light millions of households and sustain economic expansion. Abhay Singhal, director at Konnect Corporate Advisory Services, said the diversification moves by financial institutions help to increase their valuation and augment their fund-raising appetite.
"I am not surprised [by REC's plans]," Mr. Singhal said. "We have seen many infrastructure financing firms diversify into fee-based sources of revenue such as consultancy, asset management and trading as an attempt to enhance their returns."
Kalpana Jain, Deloitte Touche Tohmatsu India's senior director, said the private-equity model will be a good opportunity for cash-rich overseas fund houses, which are wary of the "perceived complexities and regulatory issues of India's power sector" to cash in on the growth prospects.
"A well-informed, on-the-ground experienced partner may just be the answer to bite into the power opportunity in India," she said.
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