There is a thrust on investments in the energy sector in the country, specifically in the renewable energy space. Big names such as the RIL group and Adani group are in it with big funding plans. In the FY24 budget there was a 50 per cent rise in the allocation to the segment.

With all the talk around climate change and the need for cleaner energy fuels, M&As and funding activity in the segment have increased exponentially.

“Today the market is super-hot in terms of M&As and fundraising in the energy infrastructure sector,” Aalok Shah, MD, Global Advisory at Rothschild & Co India, told businessline in a recent interaction. He said that the energy sector was very active with ‘every global pension fund, sovereign fund actively evaluating opportunities’ in India.

In India Rothschild ranks among the top three investment banks in terms of number of M&A deals transacted.

Following are edited excerpts of the interview.

Q

M&A deals have been subdued this year. Do you see the pace picking up any time soon?

There have been a few reasons why M&As have slowed down. The interest rate environment has changed from the free money era of 2020-2021 and in 2022 the interest rates started increasing. So automatically, it became more expensive for people to do M&As and to acquire businesses because a lot of these M&As were happening on the back of leverage. The other thing is valuations were also peaking. What we are seeing now is a change in the mindset of people. I think the pause kind of happened in 2023, but we are seeing that changing already. What you see in the market now is a trend that started six to nine months prior to this. Any M&A requires 6 to 9 months for a deal to consummate. We’re already seeing an emergence of green shoots in terms of conversations and new mandates coming to the market… where we are being called for conversations with investee companies who want to exit or funds who want to actually raise more capital for those investee companies. Those conversations have already started now and hence we would see 2024 again coming back in terms of M&A volumes.

Q

Which are the sectors where you see transactions picking up?

Among the sectors that will see M&A activity going forward - infrastructure continues to be fairly active, so infrastructure for sure. Renewables and green hydrogen are seeing a lot of interest both from the government push to funds showing interest, and even existing strategics wanting to invest more capital and raise more capital for these projects. Green hydrogen and green ammonia have become extremely critical from a policymaking perspective and from investments and we are expecting a lot of activity in in these two areas.

Fundraising is also included as part of M&A, because a global financial investor will make an investment or strategic will take a minority stake. We are aware of certain situations already in the market, where global strategics are evaluating green hydrogen platforms in India to invest in.

Q

Can you amplify a bit more about the activity in the energy sector?

Honestly, today the market is super-hot in terms of M&A and fundraising in the energy space. We did a fundraise and part secondary sale in Clean Max (to Brookfield). Another platform which was in the market at that time was Fourth Partner Energy. Continuum is another platform which is in the market as well. We are going to start a fundraise for another C&I platform for $125-$150 million.

There are larger portfolios of solar assets that are coming to the market for sale as well, with 300 megawatts to 1 gigawatt of capacity. There is a large Delhi-based platform which is looking to sell down part of its stake in a C&I portfolio. Today there are at least five to six live transactions in the renewable space alone. In addition to that, if you add a green hydrogen fundraising, there’ll be three transactions in the market for fundraising for green hydrogen, and green ammonia. Just renewables and energy itself are seeing 9 to 10 transactions in the market now. I’m aware that there are at least three to four more that will come to the market in the next six months. Overall, the market is very active and very hot. It’s a market in which every global pension fund and sovereign fund, is actively looking at evaluating opportunities.

Q

There are a lot of conversations around green hydrogen. But my sense is that it is a costly proposition involving considerable capital outlays.

If you compare green hydrogen to grey hydrogen, green hydrogen currently is more expensive on a per unit basis. There are certain technology developments that need to happen on the electrolyser side for it to be more competitive. There are companies who are now investing in the electrolyser technology as well. To give you an example, Greenko has tied up with John Cockerill for their electrolyser technology. Reliance Group has acquired an electrolyser manufacturing company.

The way to make this happen or work your math to stack up for green hydrogen to be viable is to control the entire value chain. I think if you control the entire value chain and you make the right investments, it can be competitive and that’s the reason why these groups are now investing so much in green hydrogen.

In green hydrogen, unlike solar, the volume of investment is almost five to six times more. So a 1 million ton green hydrogen project requires almost $6 billion of investment and that would be partly debt-financed. So you would have around $4.5 billion of debt that you need to raise for a project of that size, and $1-1.5 billion equity to come in. When you’re making an investment of this quantum, you must be clear that your economics have to stack up.

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