Sembcorp Industries eyes a clean energy acquisition

It wants to achieve double-digit ROE in five years and renewables business growth amongst others.

Sembcorp Industries (SCI) has indicated interest in buying clean energy producer Orange Renewable from Singapore-based AT Capital Group, OCBC Investment Research said, citing media reports.

According to its report, SCI would be at least the third firm to show interest in Orange’s portfolio, after Hero Future Energies and Greenko Group.

OCBC analyst Low Pei Han noted that Orange Renewable currently has 567.2 MW of operating wind capacity with over 2250 MW under development in various states across India. “Though India’s green energy tariffs are currently low and it is unclear when there might be a recovery, we think it makes sense for SCI to acquire renewable assets now to build up its portfolio considering it is a long-term player in the energy market. This is in line with its strategy to double its renewables portfolio to approx. 4,000 MW by 2022, especially since the world is rapidly transitioning to a low-carbon economy,” she added.

Low added that SCI also committed to achieve double-digit ROE in five years, based on underlying profit (i.e. not distorted by asset disposals). “In our view, there are three potential ways to achieve this: 1) recovery of India utilities operations (more specifically SGPL), which is possible as management is seeing some tightening in the market, 2) new order flows from marine, and 3) greater returns from a revamped utilities business (there will be multiple energy offerings built around anchor assets). An example of a new income stream is the start of a fuels trading business (asset-backed and not purely speculative), as SCI may be able to arbitrage between LNG and piped natural gas, being both a gas buyer and gas user (in power and steam).”