The wind charmer

FLOODLIGHT WITH SUNLIGHT AND overlooking the Arabian Sea, wind energy firm ReNew Power’s glass-panelled office on the fifth floor of 25, Dady Seth Road, in Mumbai, seems the perfect setting for a man determined to make a success out of the breeze. Sumant Sinha, chairman and CEO of ReNew Power, has an ambitious target: Generate 1 gigawatt (1 GW=1,000 MW) of wind power by 2015. Currently, the company has a project pipeline of 85 MW. “I want to build the best business in renewable power in India,” says Sinha.

Given that ReNew Power did not exist until April 2011, Sinha’s got his work cut out. His exposure to wind power has been a mere 22 months as chief operating officer at Suzlon, the country’s largest wind power company; he left Suzlon to form ReNew Power. Seventeen years before that he was into investment banking and finance. His only experience in managing a business was Aditya Birla’s retail foray, More, a venture that hasn’t exactly been a success. In 2007, More planned to roll out 1,000 stores in three years; today, it has less than 600.

“Sinha is neither a veteran, nor a serial entrepreneur. His expertise is finance,” says the head of a foreign bank in India. Yet, global investment banking and services firm Goldman Sachs is betting big on his venture. In September, Goldman Sachs Capital Partners paid $200 million (Rs 1,059 crore) to buy 90% of ReNew Power. This is not only the largest investment in clean energy in India, it marks Goldman’s largest commitment here.

According to VCCEdge, a research firm tracking private investments, investors such as the Blackstone Group, Merrill Lynch, and IDFC, have invested heavily in renewable energy companies in India; $522 million (including $200 million in ReNew) has been invested across 14 deals in the first three quarters of 2011. Industry sources say Goldman was later than the others in entering this space, so it is trying to catch up; it took less than three months to finalise the deal with ReNew.

“In the last five years, the wind energy sector in India has grown at a compounded annual rate of 25% to reach a capacity of 14 GW,” says Charanjit Singh, a clean energy and climate change analyst at HSBC Global Research. In an October 2011 report on wind energy, Singh states that 3 GW of capacity will be added in 2011 alone, a 39% growth over the previous year. And in the next four years, over 10 GW of capacity is estimated to be created in the country.

The question being asked by many in the industry is why did Goldman opted for Sinha’s venture. The answer could lie in Sinha’s lineage; he’s the second son of Yashwant Sinha, a member of the Bharatiya Janata Party (BJP) and former Union finance minister.

In the energy business, strong political connections are useful. The sector requires large tracts of land to set up wind farms, and support from the local administration is critical to get things moving quickly. “To meet its target of 1,000 MW, ReNew Power could require up to 20,000 acres,” says Singh.

The company, which wants to be the leading owner and operator of wind farms in India, plans to meet this target by purchasing existing projects and developing sites. The BJP is in power in Gujarat and Karnataka—states with good wind sites—and that is a positive for Sinha and Goldman.

There is also buzz that the sector will gain once the government announces a regulatory framework. Initiatives such as renewable energy certificates that allow producers to trade energy in a special market, giving them higher returns, are also in the offing.

However, both father and son downplay the political angle. “It is an unwritten rule in the family that my children never ask me for help. If Sumant comes to me for advice, I’ll see what I can do,” says Sinha Sr. Sumant Sinha adds that he is “not at an advantage or disadvantage” because of his father’s political affiliation. While this is a benefit that Goldman can have hardly overlooked, the private equity firm was also looking for someone who understood the sector, could deliver, and more important, spoke the same language. Sinha Sr. says his son has the ability to persuade. “You might have a lot of knowledge, but are you able to express yourself and persuade the other person? I think he has the gift of the gab.”

AS AN INVESTMENT BANKER with Citigroup Securities and ING Barings, Sinha spent 11 years in the U.S., raising funds for corporations and governments. “The investment banking community is small and if you know one person, you know everyone,” goes the saying in the industry. Sinha knew what would make investors comfortable before they put in money and, before talking to them, he had put that basic structure in place.

That’s why he made sure he had a good team in place before talking with Goldman. Of ReNew’s six-member management team, three—Dinesh Kumar, Ajith Pillai, and Vinay Upadhyay—are former employees of Enercon, the fourth-largest wind turbine manufacturer in the world. Enercon, a German firm, has been in India since 1994 and is ranked after Suzlon, which is not only into manufacturing, but also project services and operations and maintenance. An industry analyst from a domestic securities firm says: “Sinha has got together a team with hands-on experience. And since some of them have worked with Enercon, ReNew benefits from those learnings as well.”

Sinha had also lined up 85 MW of projects—25 MW in Gujarat and 60 MW in Maharashtra—before formally announcing ReNew Power. All the projects are expected to be commissioned by June. The company has tied up with Suzlon, Kenersys GmBH, and Regen Powertech to set up wind farms across the country. Suzlon is setting up capacity for 2,400 MW by next year, keeping in mind that companies such as ReNew and Mytrah, another independent power producer, could be its potential buyers. Mytrah has made a pact with Suzlon to buy farms generating 500 MW next year. “Sinha could do the same if he’s unable to find suitable wind sites,” says Singh.

The Goldman deal works for Sinha in many ways. Not only does he get an opportunity to tap the potential of a sunrise sector as an entrepreneur (with a near-10% stake), he gets paid a handsome salary as CEO. The deal also brings Goldman’s network and expertise to the table (it has invested $1.5 billion in renewable energy globally), along with the brand. “When you are the best capitalised renewable energy company in the country, people talk to you differently,” says Sinha.

His coup gets even bigger in light of Goldman’s long-term plans for India. In an e-mailed response, Ankur Sahu, co-head of Goldman’s private equity in Asia, said, “As a long-term investor who understands the local and global dynamics, Goldman Sachs continues to seek investment opportunities in India. There is no restriction in terms of our investment amount.”

While Sahu did not share any numbers, people close to the deal say that Goldman has earmarked up to $1 billion for the renewables sector in India. Its commitment is validated by the fact that though Sinha was in the market for $100 million to kick-start his venture, Goldman brought in $200 million. “They were keen that the entire equity fund raising component was taken care of. So we did not waste time going to the market at each stage,” says Sinha.

Going by the PE investments that Goldman makes, they have six to seven years before they take the company public. If all goes well, Goldman could be looking at “an IRR [internal rate of return] of 20% to 30% on their investment”, says Sinha. Analysts say the IRR for the sector is likely to be between 17% and 20%. Sinha’s challenge is to fill that gap and prove to Goldman that his plans are not just castles in the air.