ReNew Power’s NASDAQ IPO — Here’s All You Need To Know
2020 was a phenomenal year for SPACs. Together, they raised a record $82bn last year. While all this money was dancing on Wall Street floors, how could their peers from India be uninvited to the party?
Among the latest entities to jump on the SPAC bandwagon is ReNew Power, India’s biggest renewable power producer. It announced a merger with RMG Acquisition Corporation II, a NASDAQ-listed SPAC.
The transaction implies an Enterprise Value of $8bn for ReNew Power with realised equity proceeds of $1.2bn — Private Investment in Public Equity (PIPE) for $855m + $345m in cash that was already held by the SPAC i.e. RMG II.
Of the $1.2bn, ReNew is expected to fetch net proceeds of $610m after partially paying down debt and offering partial exits to existing investors. The proceeds are envisaged to fund future projects and drive deleveraging further.
Let’s break down the significance of this transaction, one layer at a time rather than throwing a load of acronyms word for word.
Who are ReNew and RMG II?
ReNew Power is the brainchild of Sumant Sinha, who, in spite of his high-brow political legacy (son of former External Affairs Minister Yashwant Sinha), has distinguished himself as a leading first generation entrepreneur. He set up ReNew in 2011 by enlisting equity support from Goldman Sachs.
The company has quickly recorded stellar growth in terms of commissioning wind and solar energy projects throughout India. Its portfolio comprises more than 100 projects generating in excess of 5600 MW installed power capacity across nine states. It is the only company in the Indian renewable energy sector with over 5GW operational capacity.
RMG II, on the other hand, is a SPAC - essentially a blank-check company, that was created (and sponsored by Riverside Management Group) to take a private company public. On December 14th 2020, RMG II raised $345m in its IPO. It is managed by a team consisting of Jim Carpenter, Bob Mancini and Phil Kassin, who between them have over 100 years of investment, operational transaction and board-level leadership experience. And it is the perceived quality of this team that helped the SPAC (which is essentially a shell company with no operating activities) raise a fairly lofty $345m!
With RMG II's acquisition of ReNew Power, the fully diluted pro forma market capitalisation of the resulting company will be approximately $4.4bn.
Details of the Transaction
This is the next most significant point of analysis because the nature of this transaction is fairly new for an Indian company.
The first thing to note is that this is a SPAC merger. Now, SPACs are publicly-traded shell companies which provide a vessel for unlisted companies to go public. Recently, they have emerged as a popular alternatives to traditional IPOs because unlike the latter where regulatory clearance takes a lot of time and due-diligence brouhaha, SPACs have a clean company history and profile with lesser standards to comply. They are basically deconstructed IPOs with a very short roadshow.
ReNew will raise $1.2bn of new money through the SPAC route on NASDAQ. This entire proceed includes a $855m private placement from a bunch of new investors including BlackRock, BNP Paribas, Sylebra, Zimmer Capital and also Chamath Palihapatiya (who has acquired the unique distinction of being the "King of SPACs" in India due to his involvement in 12 SPACs so far).
The private placement is the second layer of this transaction. Popularly known as Private Investment in Public Equity (PIPE), this is a mechanism for companies to raise capital from a select group of investors outside the market. All these investors are to SPACs what institutional investors are to a traditional IPO — they buy stock directly from the company below the market price and secure funding for the company in the long term.
In the process, as alluded to earlier, these PIPE funds (reportedly $500m out of the $1.2bn) will also be used to give partial exits to existing investors like Goldman Sachs (which owns almost 50% of ReNew), CPPIB, ADIA, Global Environment Fund etc. who have been seeking liquidity for a long time.
Ultimately, the $855m of PIPE money added to the $345m raised by RMG II in its December IPO will make up the $1.2bn corpus of gross cash proceeds for ReNew Power. It marks the first major SPAC deal targeting an Indian company.
Re’newed’ Business Model and Financials
The growth of ReNew Power has been augmented by stable capital flows, long-term contracts and long-term Power Purchase Agreements allocated in the renewable energy sector in India, the last point especially emphasised by Sumant Sinha. As per Chamath Palihapitiya’s assessment, ReNew Power is the “largest utility-scale, pure-play clean energy company in India”.
The company has a robust presence in the clean energy market with a well-rounded network of suppliers, technology and parties that it contracts with (mostly central government agencies like SECI and NTPC). It also entered into the digital services business by acquiring Climate Connect last year, a Pune-based company with expertise in AI-enabled grid management and load forecasting service.
ReNew’s business model operates on the highly promising growth of the energy market in India over the next decade (electricity demand projected to increase by almost 5% per year to 2040). To top it off, solar and wind energy are expected to account for more than 75% of India’s power capacity additions over the next two decades, as per the International Energy Agency reports. This becomes all the more relevant in light of the reports that almost $700m of the raised money will be diverted towards debt-resolution and expansion of ReNew’s ambitious solar panel manufacturing plans.
What To Take Away?
The power sector in India still suffers from the ailing influence of state monopoly, especially in the transmission and distribution verticals. Although the Government announced plans to delicence the distribution sector in the Budget 2021–22, it’s still a long way from here to capacity-building. There are also severe gaps in working capital and infrastructure in the sector, which can be only filled by increased private participation.
In such a scenario, ReNew’s debut may have come at the right time to upscale necessary capital expansion and encourage smaller players to attract more investments into the sector. Public offering through the SPAC-PIPE route may be the best solution for enlisting some much-needed global private capital into India’s energy sector.
(Originally published February 27th 2021 in transfin.in)
