NTPC tests currency hedging waters

Never seen this degree of volatility: CMD

For the first time ever, state-owned power generator NTPC started hedging some of their currency liabilities last month.

 

“It is for a very small amount of $5 million. We are just testing waters to understand hedging,” said G K Sadhu, executive director-finance of NTPC. The power producer has its contracts for sales in a manner that will allow them to pass on any fluctuations in forex to the consumers.

 

“Central Electricity Regulatory Commission (CERC) permits me to fully recover upto the stage that a project is capitalised, or a unit declared commercial,” said Arup Roy Choudhury, chairman and managing director of the company. He however did admit that he has never seen this degree of volatility in currency.

 

The company has a regular borrowing of around $750 million internationally. Most of these loans are from Japanese and Korean banks, at 'good' rates from Exim banks, the company said. The current meltdown in Rupee against the Dollar will not affect these borrowing plans. “But this is not the good time to go the market. But we do have loans that are tied-up and not drawn as yet. And, our drawdowns have not been affected,” said Sadhu.

 

NTPC has no plans to go ahead for full hedging due to high costs associated with it. “Hedging costs are at around 7-8%. For a one year time frame, they are as high as nine%,” said Sadhu. The overall borrowing cost of NTPC for both domestic and foreign loans is at around 7-7.5%.

 

Forex loans account to as much as 10% of the total loan book of the company. “Our loans have a tenure of over four years and we will repay them over time,” Sadhu said. He said that for the last forty years, currencies against Dollar appreciated at around 2.5% or lesser, when counted on annual basis.

 

The company imports around 10% of its coal requirements from international markets. “The quantum of imports is not very high,” said Choudhury. This year, the power generator, plans to import as much as 16 million tonnes of coal. They have already ordered around seven million tonnes of coal.

 

“We will order five million tonnes in the next one month. We will order yet another five million tonnes between January and February. That takes care of the annual coal import requirement,” Choudhury said.

 

NTPC is also sprucing up its own coal production. The first mine which would start coal production is a Jharkhand. The company has also signed fuel supply agreements for 98% of its coal requirement. “With my business model, there is no fear for lower returns,” claimed Choudhury, who came to Mumbai to attend an investor meet.