Ontario Teachers will invest Rs 2,371cr to buy 30% stake in Mahindra Susten

The green energy segment is seeing a lot of global investor interest. Now there is interest coming from very long term players like the sovereign funds, insurance players and the pension and retirement funds. The latest of these long term players to enter the Indian green energy is the Ontario Teachers’ Pension Plan. This Canada based pension fund  has now signed a binding agreement with the Mahindra Group to acquire up to 30% stake in Mahindra Susten Private Limited for an equity value of Rs2,371 crore ($300 million).
But, what exactly is Mahindra Susten Private Limited? Mahindra Susten represents the Mahindra Group’s renewable energy platform.

In terms of portfolio mix, Mahindra Susten includes renewable engineering, procurement and construction (EPC) businesses (constructed capacity of over 4 GWP). Mahindra Susten is also an independent power producer (IPP) with around 1.54 GWP of operational solar plants spread across 5 states in India with long term power purchase agreements (PPAs) in place. GWP is an abbreviated version of Global Warming Potential.

The Mahindra Group expects the proposed transaction to be executed via the setting up of an Infrastructure Investment Trust (INVIT), which is a requirement under the applicable regulations of the Securities and Exchange Board of India Act. Mahindra Group had appointed Avendus Capital to act as financial advisor to the Mahindra Group for the transaction and they had helped the Mahindra group through the complete design and execution of this deal from a long term view. Incidentally, KKR is selling out of Avendus.

As we understand from the company sources, the INVIT will initially comprise of renewable power assets seeded by Mahindra Susten having overall operational capacity of around 1.54 GWP. As part of the proposed transaction, shareholder loans worth Rs575 crore advanced by the Mahindra Group to Mahindra Susten Private Limited will be repaid. This strategic partnership is intended to capture a major share of the growing renewable and green management franchise in India. Indian government has made green energy a focus area.

While the complete contours of the transaction are yet to come in, it is evident that as an outcome of this transaction, the Mahindra Group will receive an inflow of approximately Rs1,300 crore. Ontario Teachers’ Fund and the Mahindra group will also explore the sale of another 9.99% stake in Mahindra Susten by May 2023. Mahindra group plans to use these funds and an additional Rs1,750 crore to invest in the business and INVIT in next 7 years.

Even as the Mahindra group has  made its commitments, the Ontario Teachers’ Fund has also agreed to invest an additional Rs3,550 crore into the business and also into the INVIT structure. With the fund infusion and the granular focus, it is expected that Mahindra Susten would be in a position to build a strong renewable energy portfolio which would comprise of solar energy, hybrid energy, integrated energy storage as well as round-the-clock (RTC) green energy plants. Ontario will eventually hold 30% in Mahindra Susten.

The INVIT is subject to necessary approvals and its formation would most likely happen in FY2024. The green energy industry may be exciting but it also guzzles a lot of money. That is why to unlock the value in its green initiatives, the Mahindra group will continuously need partners for investing jointly. What Mahindra group requires in this case is patient long term capital that is willing to bet on India in general and green energy in particular.That is where a truly long term player like Ontario Teachers’ Fund fits into the larger scheme of things.

As a group, Mahindra is targeting total neutrality by 2040 and leadership in ESG. Towards that end, the Mahindra group is creating a global portfolio of green assets in partnership with like minded long-haul investors. For Mahindra, the idea is to grow its green franchise across the various segments like passenger vehicles, wind energy and energy storage.