DPC foreign lenders split on debt sale

London meeting on May 12-13

Foreign lenders to the $2.9 billion Dabhol Power Company (DPC) are divided over the Indian banks and financial institutions' proposal of buying out their exposure to the beleaguered project at a 60 per cent discount.

According to institutional sources, US banks are keen to accept the proposal and get out of DPC but the European banks are resisting it. The Indian lenders cannot follow a divide-and-rule policy and buy out the willing foreign lenders as an inter-creditors' agreement has made it binding that any debt sell off has to be backed by a collective decision.

Domestic consortium of lenders to DPC, led by the Industrial Development Bank of India (IDBI), had earlier offered to buy the $390 million in debt owed to overseas lenders at 60 per cent discount.

In other words, for every dollar, the Indian lenders are willing to pay 40 cents. The proposal was discussed at a lenders' meeting in Singapore in the last week of April. It will come for discussion once again in London on May 12-13.

"Globally there have been cases where the lenders have settled for 8 cents and 20 cents per dollar. The offer (40 cents per dollar) is being made keeping in mind the value of the DPC assets," said a source familiar with the development.

The list of foreign banks which have exposure to DPC includes ABN Amro, Citi, Bank of Novascotia, Toranto-Dominion, Credit Lyonnaise, Bayerjsche Landes, Erste Bank, CSFB, Sakura, Sumitomo, Development Bank of Singapore for the first phase of the project.

The phase II of DPC involves ANZ, Bank Am, Citi, CSFBm Credit Lyonnaise, StanChart, BNP, Deutsche, Erst Bank, KBC Bank, Development Bank of Singapore.

Besides, foreign currency loans and guarantee were also extended by export import banks like US Exim, OPIC, OND, Miti and J-Exim. If a settlement is reached in the London meeting, the Indian government may help domestic lenders to take over the exposure of foreign banks.

The help may come in the form of a counter-guarantee for the special purpose vehicle that domestic lenders are planning to float to take over the outstanding dues of foreign lenders of the 2,184 mw power project.

Indian creditors, led by the IDBI, lent about $1.3 billion to the 2,148 mw project both in the form of rupee loan as well as foreign currency loan.

There are already four prospective buyers for the plant. They are a consortium consisting of British Petroleum, Tata Power Company and GAIL India; BG Group Plc; the Reliance group; and Royal Dutch/Shell.

General Electric Co and Bechtel Group Inc, had signed an agreement last month to buy bankrupt US energy major Enron's 65 stake in Dabhol Power Company.

The two had already owned 10 per cent each in Dabhol, while MSEB still owns the remaining 15 per cent.

GE and Bechtel have been insisting on an equity sale for Dabhol instead of an asset sale, which would give creditors first claim on the proceeds.

GE and Bechtel are likely to ask for $400 million for their 85 percent stake "" $200 million for their original investment, $140 million in unpaid contractor fees, $40 million in cost overruns and the $20 million that they paid for Enron's stake.