The final rounds of negotiations are underway before an official announcement, expected in a few weeks. The investment is for a significant minority stake, but comes with significant governance rights that would make KKR a co-promoter with founding chairman and chief executive Rahul Munjal. Munjal is the nephew of Pawan Kant Munjal, Chairman and CEO of
. The investment will largely be a primary injection to reduce debt and grow the business. JP Morgan is advising on the transaction.
KKR declined to comment.
Rahul Munjal and his spokesperson did not respond to ET questions.
Valuation may exceed one billion
Besides the Hero Group, the International Finance Corporation (IFC) is an investor in the company, alongside Masdar, also known as Abu Dhabi Future Energy Co., which acquired a 20% stake for 150 million dollars in November 2019, valuing the new Delhi-based company at $750 million. KKR’s cycle should see the valuation cross the $1 billion threshold.
KKR will use its infrastructure fund as a vehicle for this investment. But it will be kept apart from Virescent Infrastructure backed by KKR, which manages the Virescent Renewable Energy Trust, India’s first renewable energy infrastructure investment fund (InvIT). It is not yet clear whether KKR will later integrate one of its limited partners or a co-investor.
Decade-old HFE operates in the wind, grid-connected solar, rooftop and energy storage sectors and has a portfolio of 1.5 GW of assets in operation and 1. 5 GW additional under construction. According to its website, the company has a 500MW pipeline of utility-scale grid-connected solar projects in Europe, Africa and South Asia. It aims for a capacity of 5 GW by 2024. In 2021, HFE had sold a 49% stake in two of its projects totaling 500 MW to O2 Power.
Wholly owned subsidiaries of HFE include Hero Wind Energy Pvt Ltd (HWEPL), Hero Solar Energy Pvt Ltd (HSEPL) and Hero Rooftop Energy Pvt Ltd (HREPL). These in turn house the various individual projects as Special Purpose Vehicles (SPVs) created to undertake wind and solar power projects.
Earlier this year, the company partnered with US-based Ohmium International to set up 1GW of green hydrogen production facilities in India, the UK and Europe. Last month, the company was awarded a contract to build a 10 MW grid-connected energy storage plant in Kerala by the Kerala State Electricity Board.
The operational portfolio includes over 580 MW of wind capacity in Rajasthan, Maharashtra, Tamil Nadu, Karnataka, Madhya Pradesh and Andhra Pradesh, and over 950 MW of solar capacity in Madhya Pradesh, Telangana, Andhra Pradesh, Karnataka and Rajasthan on December 31, 2021. It has entered into long-term power purchase agreements with distribution companies in Rajasthan, Karnataka, Madhya Pradesh, Andhra Pradesh, Maharashtra, several industrial and commercial customers private companies and Solar Energy Corporation of India (SECI). Diversifying assets in terms of location and presence of strong counterparties reduces associated credit risks, experts said.
According to Crisil Ratings, the holdings of the Hero Future Energies platform are majority owned, directly or indirectly, by the promoters of the Hero group.
“These entities derive their strength from their respective 20% and 13.99% stakes in Hero MotoCorp,” said Crisil analyst Manish Gupta.
These promoter entities funded the initial capital requirement for the platform.
“The presence of Munjal family members on the board of group companies confirms the importance of the business to the Hero Group and the Munjal family,” Gupta said in a report in April. “The market coverage of HFE holdings decreased from 5.2 in September 2021 to 3.8 as of March 23, 2022, mainly due to the decline in market capitalization of Hero MotoCorp. The planned capital injection into HFE by its shareholders will mainly be used to reduce the debt of the holding companies by September 2022.”
Over the past three months, Hero MotoCorp stock has appreciated 7%.
HFE is expected to have debt service cash flow of over Rs 1,275 crore in FY23. This will adequately cover its long-term debt of around Rs 1,010 crore. In addition, HFE had cash and cash equivalents of over Rs 720 crore on a consolidated basis as of March 23, including unencumbered cash of Rs 499 crore. The holding companies had unencumbered cash of around Rs 320 crore on March 23, according to Crisil’s calculations. Market coverage of consolidated debt was 3.8 times as of March 23.
“For KKR, this is a great platform to build on as the investment helps Hero Future Energies (HFE) deleverage and the primary infusion aid in growth plans,” one person said. aware of the investment thesis on condition of anonymity.
Last year, KKR raised a record $3.9 billion Asia-Pacific debut infrastructure fund. It followed this year with a $17 billion Global Infrastructure Fund, surpassing the original target of $12 billion.
KKR Infrastructure Fund’s first transaction in India was a co-investment in May 2019 with Singapore’s GIC in Indigrid, an operator of 11 power transmission assets, where it invested $148 million. In April 2020, it acquired five operational solar power assets from Shapoorji Pallonji Infrastructure Capital (SP Infra). It transferred those assets to Virescent Infrastructure, the KKR renewable energy platform launched in October. It entered the Indian highway business by signing definitive agreements to acquire Global Infrastructure Partners’ entire stake in Highway Concessions One (HC1) and seven highway assets totaling 487 km for an undisclosed amount.