Domestic lenders want CESC debt on generation firm books

RPG firm is looking at separating generation from T&D business

Domestic lenders of power utility CESC Ltd have decided that advances made to it for setting up generation facilities will be transferred to the generating company, if the RPG group firm separates generation from its transmission and distribution business.

Around 60 per cent of CESC's debt from institutions and banks was for setting up generation facilities at Budge Budge in West Bengal and other locations, while the balance was for working capital.

"The question, however is, what was the working capital used for?" explained a source from ICICI Bank "" one of the lenders to CESC.

"We need to see how much of this was used for generation and how much was absorbed for transmission. This amount then has to be distributed accordingly," the source said.

Meanwhile, CESC has hired Ernst & Young to study the fallout of splitting the company's operations.

E&Y is due to submit its report but has held it back because the clarifications from the government on the issue is yet to be received. CESC owes ICICI around Rs 800 crore at 13.5 per cent. This is the single largest debt component on CESC's balance sheet.

The company's debt, including those of banks, domestic FIs, foreign banks, and foreign bond holders, is Rs 3,300 crore, of which around Rs 1,800 crore is due to domestic institutions. ICICI Bank has the largest exposure, followed by the Industrial Development Bank of India at about Rs 250 crore.

Under the original scheme of repayment, prior to the debt recast being finalised, CESC was paying around Rs 490 crore a year as interest repayment and finance charges "" one of the reasons for the company to go into the red.

This has, however, declined by around Rs 90 crore post recast, which will be reflected in its balance sheet from 2004-05. CESC has already embarked on its second round of financial restructuring.

It is looking at ways to reduce existing rates of interest on debt arrived at through the corporate debt restructuring (CDR) package.

Sources close to the development said CESC was looking at 9 per cent interest rate on an average after the second round of restructuring. CESC has entered into dialogue with a number of institutions for swapping high-cost debt.

After the recent debt recast, its cost of loaned funds had come down to 13.5 per cent on an average from 16 per cent a year.

CESC is also awaiting environment clearance for its proposed 250 mw power project at Budge Budge, The Rs 1,000 crore power plant would primarily be funded by foreign investors. CESC had held preliminary talks with some of them.