In July 2018, India’s largest renewable energy company ReNew Power received the market regulator’s approval to raise money from Indian capital markets. The much-anticipated share sale never took off, as the company’s ask of nearly $4 billion valuation did not find any takers and the company and its shareholders did not want to raise capital at diluted valuations.
After all, two months before filing its draft prospectus with Securities and Exchange Board of India (Sebi) in May 2018, ReNew had raised ₹1,608 crore from Canada Pension Plan Investment Board at ₹415 per share at a valuation of nearly $2.3 billion, a significant premium to what Goldman Sachs had paid in 2016 when it did a follow-up round at ₹205 per share. ReNew’s largest shareholder is Goldman Sachs, which owns 48.6 percent in the company. Japanese power company Jera had paid ₹375.28 per share in March 2017. But the private investment valuation exceeded what public investors were ready to pay.
Things have changed since then. In February 2021, ReNew Power announced that it is listing on the Nasdaq by reverse merging with a special purpose acquisition company (SPAC). A SPAC is a blank-cheque company or a shell company that lists through an initial public offering (IPO) and is registered with the US Securities and Exchange Commission (SEC).
In this case, RMG Acquisition Corp II (RMGB), which listed on Nasdaq in December 2020 by raising $345 million, has offered to acquire ReNew Power. During this process, ReNew Power will merge with RMGB and create a combined entity called ReNew Energy Global Plc, which will be listed and traded under a new symbol, RNW. When a combined business transaction is finally completed, which includes shareholder approval and financing among other things, it is called a de-SPAC transaction.
RMGB is sponsored by Riverside Management Group and during its listing it had offered to acquire companies across sectors. Till date Riverside Management Group has floated three SPACs. RMG Acquisition I has bought Romeo Power, a company focussed on designing and manufacturing lithium-ion batteries.
RMGB has offered to acquire ReNew Power. Its shares had listed at $10.42 per share on December 11, hit an all-time high of $12.78 per share on February 5, and has tapered to $10.75 per share as on March 19.
According to the investor presentation, RMGB valued ReNew Power at $3.76 billion, and post the acquisition the new combined entity’s equity value will be $4.37 billion. As part of the transaction, ReNew’s existing shareholders will own 70.2 percent in the new entity RNW.
As part of the deal, RMGB will invest $1.2 billion to acquire 29.8 percent stake in RNW. RMGB will finance it via the $345 million IPO proceeds, and the $855 million it has raised from investors as private investment in public equity (PIPE). Some of these anchor investors are BlackRock, BNP Paribas Energy Transition Fund, Social Capital’s CEO Chamath Palihapitiya, Sylebra Capital, TT International Asset Management Ltd, TT Environmental Solutions Fund and Zimmer Partners. Of the 29.8 percent stake in RNW, these investors will hold 19.6 percent.
Of the money that ReNew Power has managed to raise, $610 million is primary proceeds that will be used to build new capacity and reduce debt, $500 million will be paid as cash to ReNew’s shareholders and $90 million as fees to underwriters. The document does not clarify which existing shareholders of ReNew are cashing out as part of the deal.
While this may look like a web of complex transactions that includes a listing, a merger, a PIPE deal, and a combined listing, India’s first renewable energy company’s de-SPAC listing opens the door for others who are looking to tap the US markets, and gives companies access to a class of investors who are keen on technology-enabled companies, with a focus of environmental, social and corporate governance (ESG) factors.
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