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Statement regarding the proposed acquisition of ReNew Energy Global plc

10 February, 2025
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Michel Sznajer
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Matthew Breidert
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10th February 2025 –

This statement relates to the proposed acquisition of the entire issued and to be issued share capital of ReNew Energy Global Plc (“ReNew” or “the Company”) for $7.07 per share by a consortium of Abu Dhabi Future Energy Company PJSC-Masdar, Canada Pension Plan Investment Board, Platinum Hawk C 2019 RSC Limited as trustee for the Platinum Cactus A 2019 Trust (a wholly owned subsidiary of the Abu Dhabi Investment Authority) and Sumant Sinha (the Founder, Chairman and CEO of ReNew) (“the Consortium”).

As a long-standing investor in ReNew, we have reviewed in detail the information relating to the Consortium and its proposal and believe that the non-binding offer set out within these understates the present value of the Company and also understates its potential future value. Moreover, we find the timing of the proposal to be opportunistic and detrimental to the many shareholders who are not party to the Consortium.

We have held constructive conversations in recent weeks with members of the Special Committee set up to review the proposed acquisition on behalf of the Board. We have shared our position and rationale for our opposition to the Consortium’s non-binding offer. Under the current circumstances, we continue to believe that the Special Committee should advise the Board to reject the non-binding offer, in particular given that the Consortium appears to have failed to take proper account of the points set out below.

1. ReNew is a top renewables company in India, a market with 5-7% electricity demand growth for the foreseeable future and requiring very substantial reduction in coal power over the coming decades. The Company is still in the early days of a growth journey that will capitalise on these developments and, we believe, could keep compounding asset and EBITDA growth at double-digit rates for a long time. The growth outlook for India is not well reflected in the price proposed by the Consortium within its non-binding offer though.

2. ReNew has experienced 3 years of poor wind resources. It is therefore highly opportunistic for the Consortium to make a proposal based on depressed financial results and cash flows reflecting seasonal lows. Resources normalize over time and this should be reflected in the price proposed by the Consortium within its non-binding offer.

3. ReNew’s share price is potentially being discounted on account of market reaction to the recent scrutiny of the Adani Group as well as uncertainty in the US about the sector following the recent elections. The proposal however appears to be timed to take advantage of these near-term exogenous, unrelated and transitory effect and the timing is therefore opportunistic.

4. With higher returns anticipated through projects such as RTC coming online soon, returns and cash flows are belatedly on the cusp of inflecting upward. Existing shareholders have waited patiently for this good news to arrive and their historic support is not well reflected in the price proposed by the Consortium within its non-binding offer.

5. The price proposed by the Consortium within its non-binding offer fails also to recognise that the cell and panel manufacturing businesses are poised to ramp up after a few years of investments. These investments have weighed on the balance sheet and cash flows of the Company but, as ramp-up concludes and customer orders increase, we believe from our conversations with management over recent months that significant value will begin to crystallise in FY2026, a view supported by the high valuations ascribed to recently listed solar panel manufacturers.

Moreover, the potential restrictions on import of cells in India and the reasonable assumption by which India will have much lower import duties into the US than China would support a scenario of further enhancement to the value of this business over the coming years, even before considering the underlying robust growth in demand. We believe that the manufacturing business alone could attract an equity value of several hundred USD millions (and much more than that if applying current peers’ multiples) based on capital invested and multiples; the price proposed by the Consortium within its non-binding offer does not fully reflect this.

6. Whilst we understand and share the Consortium’s frustration with the US listing, we are concerned by the extent to which acceptance of the Consortium’s proposal would disenfranchise ReNew’s minority shareholders. Our assumption is that, should the privatisation proceed, the Consortium would list the manufacturing business in India in the coming 1-2 years to crystallize value and reduce gearing, and then list ReNew Energy Global itself in India to capture a higher valuation multiple (one similar to NTPC Green for instance). We cannot fault any shareholder wanting to enhance the value of its investments in this way but we do have a major issue with the fact that the Consortium wants to do so at the expense of ReNew’s current minority shareholders, many of whom have supported the Company since the IPO three and a half years ago. Whilst the Consortium’s offer is non-binding, the price should better reflect the probability of this future value crystallising.

7. ReNew has repeatedly said that it builds assets at 7-7.5x Capex/EBITDA and sells assets in asset transactions at 2x book value (“above 9x EV/EBITDA” is what it used to say[1]). At just $7.07, the price within the Consortium’s non-binding offer meanwhile translates into an 8.5x EV/EBITDA multiple based on 16.3GW operating capacity. Looked at another way, a share price of $7.07 translates into less than 2.0x FY26 and FY27 Price-to-book; this is below the level the Company sells individual assets, despite ascribing no value for the manufacturing business and even before considering any takeover premium. We simply do not find it credible that shareholders should be encouraged to accept such a significant discount given the Company’s own approach to generating value via asset disposal.

In summary, we continue to believe that the price proposed by the Consortium is inadequate and recommend that the Special Committee should advise the Board to reject the non-binding offer. We would prefer the Company to remain publicly listed, compounding returns over time while crystallizing value by listing its manufacturing business in India.

If the Consortium were to make an improved offer (binding or non-binding), we would only consider it and support the Board accepting it if the price were much higher than $7.07 per share and higher also than current analysts’ targets in view of the fact that these are (1) not benchmarked to Indian companies, (2) do not include a fair value for the manufacturing business and (3) do not include any takeover premium.

Michel Sznajer, Portfolio Manager of the Ecofin Energy Transition Strategy

Matt Breidert, Portfolio Manager of the Ecofin Energy Transition Strategy

Source: 

[1] Taken from Q3 FY24 Earnings presentation, https://renewpower.gcs-web.com/financials/quarterly-results

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