KS Oils Limited Sale of Wind Energy Assets SBI Capital Markets Ltd. September 2013
DISCLAIMER This Brief Information Memorandum (BIM) has been prepared for the internal use of prospective buyers to Wind Energy Generators of KS Oils Limited (KSOL), the Company, and may contain proprietary and confidential information. This BIM has been prepared by SBICAP, inter alia, on the basis of the information and documents available in the public domain, data made available by the KSOL and in house databases available to SBICAP as a part of its professional practice & which SBICAP believes to be reliable. SBICAP has not carried out any independent verification for the accuracy or truthfulness of the same. This document does not solicit any action based on the material contained herein. Nothing in these materials is intended by SBICAP to be construed as legal, accounting or tax advice. No representation or warranty, express or implied is made that it is accurate, authentic, fair, correct or complete. In so far as it includes current or historical information, its accuracy, authenticity, correctness, fairness and completeness cannot be guaranteed. This document has not been approved and will or may not be reviewed or approved by any statutory or regulatory authority in India or by any Stock Exchange in India. This document may not be all inclusive and may not contain all of the information that the recipient may consider material. The delivery of this BIM does not imply that the information in it is correct as of any time after the date set out on the cover page hereof, or that there has been no change in the operation, financial condition, prospects, creditworthiness, status or affairs of the subject or anyone else since that date. This document may contain forward looking statements which may be identified by the use of words like plans, expects, will, anticipates, believes, intends, projects, estimates or other words of similar meaning or import. All statements that address expectations or projections about the future, including, but not limited to, statements about the strategy for growth, project development, market demand supply position, expenditures, and financial results, are forward looking statements. Forward looking statements are based on certain assumptions and expectations of future events. SBICAP and its affiliates, nor its directors, employees, agents or representatives cannot guarantee that these assumptions and expectations are accurate or will be realized. The actual results, performance or achievements, could thus differ materially from those projected in any such forward looking statements.under the circumstances, no assurance can be provided that the assumptions or data, upon which any projections have been based, are accurate or whether these business plan projections will actually materialize. The information in this BIM may be subject to amendment as may be necessary, without any notice to the recipient/any person The investment rationale given in this BIM is an attempt to draw the picture of the potential which the Wind Energy Generators of KS Oils Limited may have, however the prospective bidders are advised to carry out their own due diligence of the same. Neither SBICAP, nor State Bank of India or any of its associates, nor any of their respective directors, employees or advisors make any expressed or implied representation or warranty and no responsibility or liability is accepted by any of them with respect to the accuracy, completeness or reasonableness of the facts, opinions, estimates, forecasts, projections, or other information set forth in this BIM or the underlying assumptions on which they are based or the accuracy of any computer model used and nothing contained herein is, or shall be relied upon as a promise or representation regarding the historic or current position or performance, or any future events or performance of the Wind Energy Assets of KSOL.
INDEX OF CONTENTS 1. Overview 2. Details of Wind Assets For Sale 3. Investment Highlights 4. Conclusion
1. Overview
OVERVIEW KS Oils Limited ( The Company ) was established in the year 1985. The Company is promoted bymr.r.c.garg. The Company manufactures, processes and markets Mustard Oil, Palm Oil, Soyabean Oil & Vanaspati and is also into wind energy business. Since FY 2011, the company has been facing difficulties with its operations. As per the audited results of 15 months ending June 2011, the Company has registered a net loss of Rs. 355 Crores. The Company now, in consultation with the WEB (Wind Energy Business) lenders, proposes to sell whole or part of the Wind Turbine Generators (WTGs) assets of the Company in order to repay the outstanding debt (along with interest etc) of the Company.
2. Details of Wind Assets For Sale
DETAILS OF WIND ASSETS FOR SALE Currently the wind energy assets on sale is 67.2 MW (82 WTGs)*, spread across the states of Tamil Nadu, Madhya Pradesh and Rajasthan. The state wise position of capacity and number of turbines is shown below. Madhya Pradesh 30 WTGs located in Dewas, Madhya Pradesh. 28 units are at Rathedi Hills and 2 are at Nagda Hills. Tamil Nadu 33 WTGs located in Tamil Nadu. 25 units are at Palladam, 5 units are at Pushpathur and 3 units at Tenkasi. Rajasthan 19 WTGs located in Jodhpur, Rajasthan. In Jodhpur, 4 units are at Bastwa, 5 units at Ratangarh and rest 10 units are there in Salodi. *Note: Additional WTGs upto 10 WTGs with a total of upto 10.8MW located in the states of Gujarat and Madhya Pradesh is charged to another lender. Upon receipt of the consent from the said lender, these may also be added to this WTG sale process. The details of the Additional WTGs shall then be set forth in a supplemental BIM.
DETAILS OF WIND ASSETS FOR SALE (CONTINUED) Details about commissioning of WTGs Commissioning Period Capacity (in MW) Units WTGs have been supplied by Suzlon, Enercon and Vestas. Details of capacity and units provided by each WTG supplier Apr 2005 Mar 06 2.5 2 Apr 2007 Mar 09 45.1 57 Apr 2009 Mar 10 19.6 23 Total 67.2 82 Plant Load Factor (PLF) The Net Generation Data (Net of Auxiliary Power consumption) of four years has been taken and the turbine wise PLF has been calculated on the units actually billed. 2009 10 2010 11 2011 12 Installed Capacity (MW) 67.2 67.2 67.2 PLF 22% 19% 20%
DETAILS OF WIND ASSETS FOR SALE (CONTINUED) Details of Off take arrangement Windmills of KS Oils are spread across 3 different states. Hence, the off take arrangement varies across the states according to the state policy and pricing framework. Snapshot of PPA agreements are as given below: State MP (PPA) MP (Captive) TN Rajasthan Capacity (in MW) 4.8 20.1 20.8 21.5 Offtake Arrangement MP Power Trading Captive consumption of KS Oils with wheeling charges @ 2% Tamil Nadu Electricity Board 7.5MW with VVNL; 8.0 MW Jaipur VVNL and 6.0 MW with VVNL Term (years) 20 NA 20 20 Tariff (per unit) Payment Credit Period Default by State Rs.4.03,3.86,3.69,3.52 for the first four years & 3.36 for remaining yrs Surplus generation sold at Rs 2.9 to MP Power Trading Co. Ltd Rs 2.9 3.39 7.5 and 8 MW Rs 3.52&3.63with escalation of 0.2 paise for 12 year then 0.1 paise for remaining years. For 6 MW Rs 4.28 fix 30 days NA 30 days 30 days Non payment for 90 days NA Non payment for 90 days Non payment for 90 days Option with Developer if State Defaults Terminate and sell in open market or third party. NA Terminate and sell in open market or third party. Terminate & sell to any third party after 10 years of operations
DETAILS OF WIND ASSETS FOR SALE (CONTINUED) Operation and Maintenance (O&M) Contracts KS Oils has entered into an O&M arrangement mostly with the suppliers of WTGs O&M agreement with Suzlon Total Capacity (MW) WTG Type (MW) Operation Services Charge (Rs) Maintenance Charge (Rs) Region Number of WTGs Rajasthan I 7.5 1.50 5 6,75,000 8,75,000 Rajasthan II 6 1.5 4 6,75,000 8,25,000 MP 2.5 1.25 2 4,72,500 5,77,500 TN I TN II 6 0.6 10 2,45,000 2,55,000 4.8 0.6 8 2,94,000 3,06,000 The above charges are valid upto 10 years from the date of agreement. From 11 th year onwards till 20 th year, the charges shall be as per mutual agreement at the end of 10 th year.
DETAILS OF WIND ASSETS FOR SALE (CONTINUED) Operation and Maintenance (O&M) Contracts O&M agreement with Enercon for 10 years State Total Capacity (MW) WTG Type (MW) No of WTGs Operation Services Charge (INR / WTG) Maintenance Charge (INR / WTG) Rajasthan 8 0.8 10 3,50,000 1,50,000 MP 22.4 0.8 28 3,50,000 1,50,000 TN 4 0.8 5 3,50,000 1,50,000 Escalation of 5% per annum for both operation services and maintenance charges. O&M agreements signed with Third Party for 6 MW O&M arrangements for 6 MW capacity (Number of units: 10 WTGs) by Vestas in Tamil Nadu have been outsourced to a third party operator (I Fox Renewable and Infra Pvt Ltd).
DETAILS OF WIND ASSETS FOR SALE (CONTINUED) Land Details Land required for setting up WTGs have been either purchased or leased. In Tamil Nadu, land has been acquired/ purchased for setting up of WTGs. In the states of Rajasthan and Madhya Pradesh land is on lease basis Madhya Pradesh Of the 30 WTGs located in Madhya Pradesh, 28 were supplied by Enercon and 2 by Suzlon. Land for WTGs from Enercon were initially leased by Enercon and later transferred in the name of KS oils for a one time payment of Rs 30,000 /MW. The lease deed is signed for a period of 20 years with the Madhya Pradesh Forest Department. Land for Suzlon machines in MP is directly leased from MP Forest Department for a period of 30 years. Tamil Nadu There are a total of 33 WTGs in Tamil Nadu and land for all WTGs in Tamil had been purchased. Approximately 68 acres of land was purchased for setting up the WTGs for a total consideration of 1.5 Crores (Approx) during the period FY 2007 08 and FY 2008 09. Rajasthan There are 19 WTGs in Rajasthan. All WTGs have been set up on land sub leased from the WTG supplier. The suppliers have leased the land initially from the Government of Rajasthan and then subleased it to KS oils. For WTGs supplied by Suzlon, lease rent will be paid as per the prescribed rate per year decided by the Government of Rajasthan while for all Enercon machines, the lease rent is fixed at Rs 92,775 per year.
3. Investment Highlights
INVESTMENT HIGHLIGHTS Opportunity to acquire operational wind assets Benefit of Accelerated 80% Depreciation PPAs Transfer/ Termination This opportunity enables the buyer to expand its wind power generation portfolio by 67.2 MW in one go. The said acquisition will mitigate the risk of installation and commissioning as the assets are fully operational. Besides, as most of the assets are relatively new, the balance life is more than 20 years which is available for generation. The benefit of accelerated depreciation (80%) may be available to the prospective buyer on the Actual Cost i.e. the cost of the assets to buyer. After the latest Income Tax notification (Notification No. 15/2012 [F.No. 149/21/2010 SO (TPL)] S.O 694 (E), dated 30 03 2012), the depreciation is restricted to 15% on wind mills installed after 31 03 2012. Hence, due to earlier installation of the wind mill on sale, the buyer may be able to enjoy depreciation benefit of 80% which is no longer available on new installation. If Option of selling power to third party at mutually agreed price or to state distribution Company on the Average Pooled Purchase Cost (APPC) is chosen, then there will be additional benefit every year (available only after 3 years of PPA termination) from RECs at presently applicable floor price of Rs. 1500/MWh. CDM Benefit Out of total of 67.2 MW, approximately 50% are already registered for issuance of CERs and remaining 50% are in advanced stage of approval. Madhya Pradesh and Tamil Nadu allow 100% of CDM benefits to developer in first year and thereafter reducing it by 10% every year till the sharing becomes 50:50 between the developer and the distribution licensee. In Rajasthan this sharing is 25:75 between distribution licensee and the developer respectively.
INVESTMENTHIGHLIGHTS (CONTINUED) VCU/VER Benefit The buyer can claim VCU/VER for previous two years before approval of the project for CER. As informed by the Company, VER corresponding to 8.5 MW has already been utilised by them and VER for the remaining capacity will be available to the buyer. Location Benefit/Important sites The WTGs are installed at such locations which are one of the suitable sites for energy generation through wind in the country. The WTGs have the first mover advantage due to their site locations and will command better generation than the wind farms which will be installed at other sites Renewable Purchase Obligation Renewable Purchase Obligation (RPO) is the obligation mandated by the State Electricity Regulatory Commission (SERC) under the Electricity Act 2003, to purchase minimum level of renewable energy out of the total consumption in the area of a distribution licensee. Current RPOs for various states: Year Madhya Pradesh Rajasthan Tamil Nadu FY 2011 12 2.50% 6.00% 10% FY 2012 13 4.00% 7.10% 10% FY 2013 14 5.5% 8.2% 10%
4. Conclusion
CONCLUSION This opportunity instantly enables the buyer to expand its wind power generation portfolio by 67.2 MW. There is no risk of installation and commissioning as the assets are fully operational. Assets are relatively new. The balance life is more than 20 years which is available for generation. The benefit of accelerated depreciation (80%) may be available to the prospective buyer on the Actual Cost. Benefits related with renewable energy development like RECs and CDM benefits, are available. Assets are located at suitable sites for energy generation through wind. Energy generation through wind is renewable source of energy, which is having bright future ahead on account of increasing cost of conventional energy, renewable purchase obligations, and other factors associated with green energy. In view of the afore mentioned details, this presents an attractive opportunity to invest in wind energy generation business.
ABBREVIATIONS CDM CDR CER CERC COD DISCOM BIM JVVNL KWh MP MW O&M PLF PPA REC RPO SEB SERC TN TNEB VER WEB WEG WTG Clean Development Mechanism Corporate Debt Restructuring Certified Emission Reduction Central Electricity Regulatory Commission Commercial Operation Date Distribution Company Brief Information Memorandum Jaipur Vidyut Vitran Nigam Ltd Kilowatt hour Madhya Pradesh Mega Watt Operation and Maintenance Plant Load Factor Power Purchase Agreement Renewable Energy Certificates Renewable Purchase Obligation State Electricity Board State Electricity Regulatory Commission Tamil Nadu Tamil Nadu Electricity Board Voluntary Emission Reduction Wind Energy Business Wind Energy Generator Wind Turbine Generator
Thank You For further details please contact: Supriyo Gupta Vice President supriyo.gupta@sbicaps.com Tel: 011 23416040 M: +918447498894 Fax: 011 23415797 Abhinav Gupta Asstt. Vice President abhinav.gupta@sbicaps.com Tel: 011 23415798 M: +919560397194 Fax: 011 23415797 Amit Kumar Manager amit.kumar2@sbicaps.com Tel: 011 23418460 M: +919560397213 Fax: 011 23415797 Rekha Natarajan Manager rekha.natarajan@sbicaps.com Tel: 011 23418460 M: +918860242452 Fax: 011 23415797