First unbundled state power utility to tap market.
The Maharashtra government-promoted electricity generation company, Mahagenco, plans to go in for an initial public offering (IPO) to mobilise funds for expansion.
Mahagenco, an unbundled entity of the erstwhile Maharashtra State Electricity Board (MSEB), will soon seek the state cabinet’s approval to initiate the process by launching the bidding process for the appointment of advisors. The proposal is for a public issue of shares of 10-20 per cent of the total equity.
A Mumbai-based analyst said Mahagenco would probably be the first among all unbundled entities across the country to explore an IPO option.
Mahagenco, with an installed generation capacity of 9,996 Mw, has proposed capacity addition of 12,000 Mw and renovation and modernisation of existing plants with a capex of Rs 70,282 crore up to 2016-17. The equity requirement for these projects, on a debt equity ratio of 80:20, works out to Rs 14,056 crore. However, if a 30 per cent equity is assumed based on the regulations released by the Maharashtra Electricity Regulatory Commission, Mahagenco’s total equity requirement can go up to Rs 21,084 crore. So far, Rs 6,022 crore, being 20 per cent equity, has already been committed through state outlay.
A senior state government official told Business Standard, “The issue was discussed last week at the cabinet sub-committee chaired by the chief minister. Given the magnitude of the equity requirement in the next five to six years, it is necessary for Mahagenco to raise resources on the strength of its existing assets and cash flows. The idea is that Mahagenco’s huge asset base can be leveraged to obtain equity from public. The estimated market value of assets is Rs 19,100 crore as against the book value of Rs 9,558.21 crore as on March 31, 2005 (Mahagenco came into existence in June 2005).”
Mahagenco would, with this process, be able to reduce its dependence on state support, the official said. “Besides, to the extent Mahagenco is able to mobilise equity funds from the market, the state government can channelise more money for non-plan support required by the MahaVitaran (the distribution company) for meeting tariff subsidy for various consumers,” he added.
The Mahagenco move comes at a time when state electricity boards continue to be in a financial mess, with an aggregate loss of Rs 27,500 crore and outstanding receivables of Rs 47,400 crore.
R V Shahi, former secretary of the Union power ministry, welcomed Mahagenco’s move and said, “Around a year ago, I had suggested that at least a dozen state generating companies which are comparatively better performing must access equity capital from the market as we did in case of NTPC. This will help generating companies to take up their capacity expansion programme without depending upon state-level budgetary support. In fact, this approach could become a mode of funding equity for expansion of generation capacity, without state utilities anchoring after the state governments for getting equity support.”
