Canadian Pension Firm & Mahindra Group Collaborate Strategically in RE

The Mahindra Group and the Canadian-based pension firm, Ontario Teachers’ Pension Plan Board have announced a strategic alliance to take advantage of the expanding renewables market in India. Both parties have entered into legally binding agreements under which Ontario Teachers’ will purchase a 30% equity stake in Mahindra’s solar development arm, Mahindra Susten Pvt Ltd for an equity value of Rs. 2,371 crores (roughly $300 million).

By applicable Securities and Exchange Board of India regulations, the proposed transaction also includes the creation of an Infrastructure Investment Trust (InvIT). The InvIT is initially planned to include renewable energy assets seeded by Mahindra Susten with an operational capacity of approximately 1.54 GW. Mahindra Group will reimburse Mahindra Susten for shareholder loans totaling Rs. 575 crores (roughly USD 73 million) as part of the proposed transaction.

The Mahindra Group will receive an inflow of about Rs. 1,300 crores (roughly USD 165 million) as a result of this transaction. By May 31, 2023, Mahindra Group and Ontario Teachers’ will jointly investigate the sale of a further 9.99% stake in Mahindra Susten. The Mahindra Group will invest these funds and an additional sum of up to Rs 1,750 crores (roughly USD 220 million) over the following seven years in the business and InvIT.

In the same time frame, Ontario Teachers has promised to invest up to Rs 3,550 crores (roughly USD 450 million) more in the company and the InvIT. With the help of this transaction, Mahindra Susten will be able to establish a solid renewable energy business with a particular emphasis on solar energy, hybrid energy, integrated energy storage, and round-the-clock green energy plants.

According to India’s revised Nationally Determined Contributions (NDCs) to the United Nations Framework Convention on Climate Change (UNFCCC), the country is now committed to achieving about 50% of its installed capacity of non-fossil fuel-based energy sources and a 45% reduction in its GDP’s emissions intensity from 2005 levels by 2030. These are tangible actions that will help India reach its long-term objective of becoming net zero by 2070. Therefore, the long-term growth of the Indian renewable industry is anticipated to be significant.

The purchase of a 30% stake in Mahindra Susten by Ontario Teachers (Canadian Pension Firm) is anticipated to close in the coming months, subject to regulatory approvals and other closing requirements. InvIT formation is also anticipated for FY 2024, pending necessary approvals.

Long term investors like Pension funds are increasingly considering renewable investments favourably, thanks to the predictable nature of the earnings  and a track record that is building up since 2015 worldwide. Top Indian developers ranging from Adani Green Energy to Tata Power to Renew Energy Global have benefited from such interest in recent months. Even NTPC is hoping to close a deal with such a strategic financial investor soon.

Recently, Mahindra Susten commissioned a portion of its solar project at Kolayat in the Bikaner district. Mahindra commenced the first portion of a 175 MW (AC) out of the total 250 MW solar project.