Deal focus: Goldman secures $1bn exit from India’s ReNew
Goldman Sachs has clocked a healthy return from ReNew Energy Global after helping the company diversify its offering and navigate the regulatory pitfalls of India’s renewables space
Goldman Sachs ended a 12-year journey last month by selling the last of its stake in ReNew Energy Global, India’s largest pure-play renewable energy provider. The firm committed USD 470m to ReNew between 2011 and 2019; it departs with approximately USD 1bn in proceeds.
ReNew delivered a liquidity event to its investors in 2021 through a merger with a NASDAQ-listed special purpose acquisition company (SPAC) at an enterprise value of USD 7.85bn. Goldman, which was the largest shareholder with 46.5% prior to the merger, saw its ownership reduced through a combination of equity dilution and a USD 112m realisation.
More sales happened from early 2022. Canada Pension Plan Investment Board (CPPIB), which had backed ReNew as a private company alongside Goldman and held 17.8% pre-merger, was the principal buyer. It paid around USD 860m, ultimately taking majority ownership. The stock has traded down since the merger, closing at USD 5.41 on April 4 for a market capitalisation of USD 2.1bn.
Goldman has a rich pedigree in renewables globally, making investments across the US, Europe, and Asia. Notable activity in Asia includes the establishment of Japan-based JRE, which was sold to domestic oil giant Eneos in late 2021 for USD 1.8bn. The firm is targeting USD 150bn in clean energy financing and investments by 2025, having revised a goal of USD 40bn announced in 2012.
“We are very well set up to help renewable energy and sustainability companies scale up. We have the experience in building these companies from the ground up,” said Michael Bruun, global co-head of private equity at Goldman Sachs Asset Management and previously a board member of ReNew.
Small beginnings
When Goldman first backed the company, it had only three employees. Much of the thesis was based on the capabilities of Sumant Sinha, ReNew’s chairman and CEO, formerly COO of wind turbine manufacturer Suzlon Group and a senior executive at Aditya Birla Group.
“We don't want to take a lot of technological risk, but we are happy to take the scale-up risk. Our approach is to back companies or management teams during the scale-up phase, and to take proven technological products or concepts to a very significant scale,” Bruun explained.
“During that process, we focus on attracting the right talent and getting the right systems in place so that companies can replicate the functioning technology.”
Goldman’s initial equity cheque of around USD 200m was one of the largest investments in India’s clean energy space at the time. It re-upped in 2014 and 2015 – committing USD 70m and USD 50m – and led a USD 300m round in 2019. CPPIB and Abu Dhabi Investment Authority (ADIA) also made investments in the company during this period.
Equity accounted for less than one-quarter of the USD 6.1bn in funding ReNew had secured through December 2020. The rest comprised debt, including a sizeable amount of overseas green bonds.
The company initially focused on wind and then expanded to solar and clean energy storage solutions such as hydrogen, which generate higher returns than traditional renewable energy. It dropped 'Power' from its name to reflect a transition from power producer to end-to-end energy solutions provider.
As of November 2022, the total portfolio amounted to 13.4 gigawatts of capacity – 6.9 GW of solar, 6.4 GW of wind, and 0.1 GW of hydro. Commissioned solar and wind capacity was 3.7 GW and 3.9 GW, respectively. Half of commissioned capacity went to state-level grid operators and 31% to the central government. Power purchasing agreements (PPAs) with corporates accounted for 10%.
Revenue came to INR 59.3bn (USD 782m) for the 12 months ended March 2022, up from INR 48.2bn a year earlier. The company’s net loss widened from INR 8bn to INR 16.1bn. For the first nine months of the 2023 financial year, revenue was up 23% year-on-year at INR 63.5bn and the net loss had narrowed from INR 12.6bn to INR 5.1bn.
During its investment period, Goldman helped ReNew reduce costs and drive returns. Initiatives included building out supply chain and manufacturing capacity near-shore or onshore, so the company wasn’t wholly reliant on external sourcing for key materials, and providing stable power solutions that don’t fall victim to variations in weather conditions.
“We were constantly asking, ‘Should we pursue a certain project? Should we spend more money on wind versus solar? Should we focus on more sophisticated projects like round-the-clock bids where you have a combination of wind, solar and storage?’ We worked closely with the management team on the most important strategic and leadership questions,” said Bruun.
Pain points
Private equity investors are generally bullish about the long-term prospects for clean energy in India – a ReNew presentation from September 2022 notes that nationwide capacity should expand from 99 GW to 447 GW by 2030. However, there is uncertainty as to how smoothly policy will crystallise into investment opportunity.
For example, financing costs for renewable projects are higher than elsewhere because of higher base rates and wider credit spreads. Goldman brought in the likes of CPPIB, ADIA and Japan-based power generation player Jera to support equity funding and give ReNew additional credibility when tapping debt markets. Goldman’s investment banking team also helped raise debt financing.
Regulatory uncertainty is best illustrated by the Andhra Pradesh government’s 2019 proposal to cancel PPA signed with renewable energy producers under the previous administration because it thought tariffs were too high. Other states attempted to follow Andhra Pradesh’s example.
Some investors responded by retreating from India; Goldman held firm, leading a funding round for ReNew the same year. In 2022, a court ruled that existing PPAs should be upheld, which was widely viewed as a positive development for the industry. Nevertheless, expanding PPAs with the central government and corporates is a priority for most renewable energy producers.
“Regulatory clarity and stability, and overall cost of capital are two incredibly important factors for the proliferation of renewable energy in India,” said Bruun.
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