Lenders to meet on REL's Dadri project funding

The inter-institutional group of financial institutions will soon meet to discuss the financing of Reliance Energy's (REL) Rs 11,000 crore power project at Dadri in Uttar Pradesh.

"The debt-equity ratio is only one of the issues. We need to look at other factors such as fuel linkages as well. In a low interest rate regime, a relatively higher debt-equity ratio can be considered provided other issues are sorted out," said an institutional source.

FIs had earlier declined to fund the project at a 90:10 debt-equity ratio, as proposed by the company. "We have recently communicated (to Reliance) that a debt-equity ratio of 90:10 is ruled out," said a senior official with one of the lenders to the project.

The normal debt-equity ratio approved for power projects is 70:30. This means for every Rs 30 worth of equity, Rs 70 worth of debt is advanced.

"There could be a slight deviation, depending on the comfort level of the lenders vis-a-vis the project. A 90:10 debt equity ratio for any power project is, however, not feasible," the official said.

A 90:10 debt-equity ratio would have meant sanctioning aggregate loans of Rs 9,900 crore for the Rs 11,000 crore Dadri project. The official said at 3,740 mw capacity, it was huge project and the sole buyer being the state electricity board did not provide encouragement to sanction loans at such a ratio.

"A lower price per unit is being talked about. But nobody is sure about input costs when the project is commissioned," he said.

REL executives did not comment on the issue. REL also did not respond to an e-mail seeking its response.

Bankers said such a high debt-equity ratio can only be considered for a captive power plant where a blue-chip corporate such as Reliance Industries is the sole buyer.

REL had in January 2005 rescheduled commissioning of the project to 2008-09 after Reliance Industries announced a delay in availability of gas from its Krishna-Godavari D-6 gas fields.

REL is implementing the project through a special purpose vehicle, Reliance Energy Generation (REGL). REGL has already invited international competitive bids for supply of gas for the project and stated that if gas could be tied-up from sources other RIL, "the project start-up could be potentially accelerated for implementation."

Appraisal of the project was held in abeyance following a spat between the Ambani brothers over the ownership of the group. The lenders have begun appraising the project after the feud was resolved.

The plan was to fund the project on a non-recourse basis, where lending is secured against the project's assets and the borrower is not personally liable.

REL plans to implement the gas-fired power project in phases, starting with with 1,200 mw first. REL had first made a presentation to a group of banks in May 2004 and urged them to agree to a 90:10 debt-equity ratio.