Rural Electrification Corporation (REC) has got approval from a risk committee of China Export and Credit Insurance company, Sinosure, to fund a 3,600 Mw power project in Chhattisgarh through two-step loan.
This is the first time that a project will be financed by Chinese banks through a two-step export credit agency (ECA) funding in India.
"We have got approval from the risk committee to fund the KSK Mahanadi Power project in Chhattisgarh. Chinese banks along with Sinosure will lend $343 million for the project," said Chairman and managing director H D Khunteta. Till now the end-users have been taking loans from Chinese banks and this is the first time that such a method of funding is being used under ECA financing where the money will flow to the end user through a third party, he said.
The loan will be insured by Sinosure, which will provide insurance in case of default by the end user of funds. The repayment period will be 13 years, including a three-year moratorium or grace period. The loan will be used to fund the equipment needs of the project.
Usually, under the ECA funding, the end-user raises the money directly from the banks overseas. However, smaller players are unable to bargain for better interest rates.
"It is easier for the bigger and known players to raise loans at attractive rates. However, the smaller funds do not have that advantage. Under the two-step method, where the insurance cover by Sinosure is provided, will help us to bargain for lower interest rates," Khunteta said.
REC will talk to the Chinese banks to decide the interest rates.
The loan liability will be shouldered by REC in case of default by the end party. "The requirement of the power project is huge. In the first phase 1,800 Mw will be installed and REC will finance a part of it," Khunteta said.
The Sinosure risk committee will write to the government and issue a letter of intent.
The public sector infrastructure financing company is looking to raise money overseas for financing projects due to lower interest rates. "The interest rate on the loan will be far less than the ones prevailing in the domestic market and it will be an additional source of funds for us," he added.
