The Indian power sector, charged up with increased merger and acquisition activity recently, is poised for more such deals, as lenders nudge beleaguered local developers to lower valuation expectations of their projects to attract foreign investment. In the last three months, foreign companies have committed investments of around $2 billion, or about Rs 12,200 crore, into hydro and thermal power plants in the country. Industry observers say foreign investors are keen to pick up more projects as the M&A route gives them easy entry into the sector and valuations are attractive because most developers are caught between huge debt and poor cash flow. But they are being choosy. Riding on the power boom 5-10 years back, several power companies had embarked on aggressive expansion plans while many other companies diversified into the sector, lured by the demand potential. But a change in economic environment and a host of issues inherent to the sector – ranging from environment clearance and land acquisition to fuel availability and weak financial health of state electricity boards – have left these companies with huge debt and muted cash flows.

(Economic Times)