J Suresh Kumar, chief financial officer of the Hyderabad-based Lanco Infratech, says the lull in raising funds in the past few months is now a distant memory. “The power sector has always been rosy. There were only some temporary problems in the past few months due to liquidity issues in the global markets. That phase is over. At least 15,000 Mw of projects worth over Rs 70,000 crore will achieve financial closure in 2009-10,” he said.
Kumar has reasons to be optimistic. Lanco’s Phatabyung hydroelectric project in Uttarakhand was among the four power projects which achieved financial closure in the last fortnight of July. The other three were Essar Power’s 1,200 Mw Mahan project in the Singrauli district of Madhya Pradesh and Reliance Power’s 300 Mw project at Butibori near Nagpur and the second phase 600 Mw of Rosa Power.
The Lanco project, being developed by its subsidiary, Lanco Hydro Energies, at a cost of Rs 520 crore, would be financed with a debt of Rs 416 crore provided by a consortium of five banks led by Axis Bank. The company, which a few days earlier raised Rs 720 crore via a qualified institutional placement (QIP) issue, has five power producing projects and plans to add 8,000 Mw in the coming years. “The second phase of the gas-based Kondapalli 368 Mw, 1,015 Mw coal-based Udupi Power and 1,200 Mw Anpara will start power production within one-two years, as we have already tied up finances for most of our planned projects,” said a Lanco Infratech spokesperson.
Two weeks earlier, Lanco also bought the stake held by German financial institution DEG in Lanco Amarkantak, which is building a 1,920 Mw thermal power station in Korba district of Chhattisgarh.
In fact, Indian power companies have raised over Rs 20,000 crore in the past two weeks from domestic banks and global investors, boosting the behind-the-schedule power capacity addition plans of the country. Analysts are convinced the trend will gain momentum.
Sanjay Sethi, executive-director and head, Infrastructure Group, Kotak Investment Banking, said “clearly investors’ appetite for funding viable projects of strong companies has increased. This is evident from the success of a few initial public offers and fund-raising done by some corporate houses. This trend will continue, as globally there are not many opportunities for investors in the current scenario”.
Anil Agarwal-promoted Vedanta’s subsidiary, Sterlite Energy, raised over Rs 7,200 crore through an American Depository Receipts (ADR) issue and Tata Power raised about Rs 1,600 crore through a GDR issue, to fund their power projects. Wind turbine major Suzlon also raised close to Rs 950 crore through a GDR and Foreign Currency Convertible Bonds (FCCBs) issue to reduce debts and for working capital requirements.
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Adani Power, which approached the capital markets to finance its upcoming projects in Gujarat and Maharashtra, raised over Rs 3,000 crore through an initial public offer (IPO), which ended last week. It was the largest fund-raising through an IPO in India since the global economic meltdown one-and-a-half years ago.
Essar Power’s Rs 4,860-crore, 1,200 Mw, Mahan project in Madhya Pradesh was funded at a debt-equity ratio of 3:1 by a consortium of ICICI, PFC, REC and PNB. An Essar Power spokesperson said the company was close to achieving financial closure for three more projects of 1,200 Mw each within three to four months.
“All our projects will be funded by a 3:1 debt:equity ratio and plans are to raise our generation capacity from the current 1,200 Mw to 6,000 Mw by 2012,” he said. Besides Mahan, Essar Power is executing three projects of 1,200 Mw each at Salaya and Vadinar in Gujarat and another in Chhattisgarh.
“We plan to achieve financial closures for our 1,200 Mw Chhattisgarh project and the recently acquired 600 Mw Emco project during this fiscal,” said V Subba Rao, chief financial officer and president of GMR Infrastructure. GMR Energy has about 5,000 Mw under implementation and another 5,000 Mw is in the planning phase. GMR Energy, which last week acquired the 600 Mw Emco Energy from transformer maker Emco, is also scouting for more such acquisitions, he said.
Reliance Power’s Rs 1,200 crore-plus Butiburi project in Maharashtra will be also funded by a consortium of banks led by Axis. Industrial Development Bank of India (IDBI) and a consortium of other banks have committed to fund over Rs 2,000 crore for the company’s Rs 2,700 crore, 600 Mw second phase of the Rosa Power project in Uttar Pradesh.
“We are on course to raise Rs 20,000 crore of debt this fiscal, having made significant progress in getting appraisals and sanctions for our Krishnapatnam ultra mega power project,” Anil Ambani, chairman of Reliance Power, told the annual general meeting of the company last week.
R-Power had achieved financial closure for its Rs 19,500 crore, 4,000 Mw ultra mega power project coming up at Sasan in Madhya Pradesh in mid-April, in the largest debt funding for any infrastructure project in the country. In February, its group company Reliance Power Transmission (RPTL) also had announced financial closure for the Rs 1,385 crore Western Region System Strengthening Scheme (WRSS) transmission project in Maharashtra and Gujarat.
Sources said the revival of capital markets and success of the Adani Power IPO have prompted many Indian power companies to revive their plans to tap capital markets in the near future. These include major power sector players such as Sterlite Energy, Indiabulls Power, JSW Energy and public sector National Hydro Power Corporation (NHPC).
According to sources, Vedanta Resources subsidiary, Sterlite Energy, may tap the capital markets in three to four months to raise over Rs 3,000 crore. It is currently setting up two power projects, a 2,400 Mw plant at Jharsuguda in Orissa and another 1,980 Mw project in Punjab at an investment of about Rs 15,000 crore. It has already achieved financial closure for the Orissa project. The Vedanta Group is targeting a capacity generation of 11,000 Mw by 2012, with an investment of about Rs 50,000 crore.
Indiabulls Power is planning to raise over Rs 1,500 crore through a soon-to-be-launched IPO. It is working on power projects with an aggregate capacity of over 10,000 Mw and a few months ago, achieved financial closure for its upcoming 2,640 Mw Amravati thermal power project.
Sajjan Jindal-promoted JSW Energy is another company looking at tapping the capital markets to fund power projects. The company, which is setting up a 3,200 Mw power project at Ratnagiri in Maharashtra, is aiming to become a major power producer with over 12,000 Mw by 2012. JSW Energy is targeting to raise over Rs 4,000 crore from its IPO.
NHPC Ltd, India’s biggest hydroelectric power generator, plans to raise Rs 6,000 crore in an IPO that opens this week. Hinduja Power Co. Ltd is also looking at financial closure by the end of October for a coal-fired Rs 5,500 crore project in Andhra Pradesh.