Rupee-Greenback Toss Up

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[(Pic by Bivash Banerjee) Reliance power-owned Sasan Power may have tied up Rs 14,550 crore of rupee loans from a clutch of banks led by the State Bank of India (SBI) to achieve financial closure of the 4,000- MW ultra mega power project (UMPP) at Sasan in Madhya Pradesh, but the company is already scouting for foreign funds to replace at least 50 per cent of the debt at the earliest. The SBI-led domestic debt has come at a high interest rate of 12-12.5 per cent. As a comparison, Krishnapatnam Port, which also announced its financial closure recently, arranged debt funds to the tune of Rs 3,500 crore at a rate of 11 per cent. Reliance Power was initially planning to raise $2 billion through external commercial borrowings (ECBs). But with the global financial crisis setting in, it was taking longer to raise such loans, according to J.P. Chalasani, CEO of Reliance Power. DOMESTIC STRENGHTH Reliance Power has raised funds in a tough market Except IIFCL (UK), no foreign bank is part of the financial closure A consortium of 13 banks led by SBI arranged funds of Rs 14,550 cr Among the largest contributors are SBI (Rs 3,500 cr), IIFCL ($500 million) and Power Finance Corp. (Rs 1,770 cr) Seven states, including Delhi, to source power from the project at a levelised tariff of Rs 1.19 per unit Around October 2008, the company decided to raise rupee loans from domestic banks and announce financial closure. The project is being executed at an estimated cost of Rs 19,400 crore with a debt equity ratio of 75:25. The equity contribution from the parent company Reliance Power (of the Anil Ambani group) to the project is Rs 4,850 crore. Along with SBI, 11 other domestic banks, including India Infrastructure Finance Company (UK) agreed to provide long-term debt for the power-cum-coal mining project in Madhya Pradesh. IIFCL (UK) is the only bank that has committed foreign currency loan of $500 million. Sasan Power will supply power at the lowest ever committed tariff of Rs 1.19/KWH to 14 utilities in seven states &mdash; Madhya Pradesh, Delhi, Punjab, Haryana, Uttar Pradesh, Rajasthan and Uttarakhand. Chalasani says Reliance Power has already mandated Standard Chartered Bank to lead-arrange foreign currency loans of $1.5 billion. Apart from Standard Chartered, these would mainly come from Chinese and US Exim banks in the form of vendor credit. Power equipment for the project is coming from China&rsquo;s Shanghai Electric, while the mining and related equipment is being sourced from a US-based firm. Foreign currency loans for infrastructure projects are important for facilitating imports of equipment. Prior to Sasan, the first UMPP to achieve closure was the Tatas&rsquo; Mundra project in Gujarat exactly a year ago. The project was funded by ECBs worth $1.8 billion while the rupee component of the loan was Rs 5,550 crore only. Interestingly, Reliance&rsquo;s debt in rupees signals that liquidity is improving in the domestic market. Especially since it comes within a month of another set of banks agreeing to extend close to Rs 9,000 crore for three infrastructure projects in March. Anticipating early closure of parts of the rupee loans, Reliance Power has negotiated a covenant in the loan agreement that exempts pre-payment penalty when the company goes for foreign currency swaps. According to an executive from another infrastructure company, which is also currently involved in arranging finances, domestic banks are beginning to accept penalty free pre-payment for infrastructure projects in recent times. As part of the payment security mechanism, banks have been given the standard payment security mechanism that includes letter of credit, default escrow facility and third party sales. Added to this, banks have also been offered corporate guarantee to cover factors such as cost escalation. (Businessworld Issue Dated 27 April-04 May 2009)