PFC plans to raise $500 mn via ECB

Power Finance Corporation (PFC), the state-owned power sector financier, is planning to borrow $500 million from the overseas markets after the government relaxed the norms for external commercial borrowings (ECB).

It had earlier got the central bank’s approval for $300 million ECB but could not borrow due to the ongoing financial crisis.

Till last Wednesday, the Reserve Bank of India’s ECB policy restrained companies that do not come under the automatic route to two conditions for raising debt abroad — maturity of at least seven years and an interest rate ceiling of 450 basis points (one basis point is one-hundredth of a percentage point) over London interbank offered rate (Libor).

“We could not borrow within the interest rate ceiling in the background of the current financial crisis affecting the overseas markets,” said Satnam Singh, chairman and managing director of Power Finance Corporation.

This is despite the fact that the company enjoys sovereign rating. Fitch Ratings has recently affirmed ‘BBB-’ (BBB minus) rating for long term foreign currency issuer default rating. This is equal to the country’s sovereign credit rating.

However, with the new ECB norms announced last Tuesday, PFC is hopeful of raising $500 million from the overseas markets, said Singh.

With foreign investors pulling out $11 billion from the equity market in India,RBI has now allowed companies to borrow at Libor plus 500 basis points for loans with maturity period of five years and above.

PFC is hoping that given the relaxation in the ECB norms and softening of interest rates it will be able to borrow from overseas markets. At present, domestic borrowing constitutes 95 per cent of its total debt, but the Delhi-based power sector financing company is planning to increase the share of overseas debt.

The Libor rates went up sharply in the wake of liquidity crunch hitting the money market. The overnight borrowing rate spiked by 430 points on the last trading day in September to 6.875 per cent. However, with central banks across the world announcing measures to inject liquidity into the market, the overnight Libor has come down below 2 per cent on Thursday.

In the current financial year, PFC plans to raise a fresh debt of Rs 20,000 crore. It has already raised Rs 8,000 crore. The last debt issue was for Rs 4,100 crore domestic bond issue at 11 per cent interest rate.

NO SLOWDOWN IN POWER PROJECTS
PFC has seen no impact on fund disbursals or sanctions in the backdrop of the economic slowdown. In the September quarter, PFC reported an over 50 per cent increase in disbursements and is on track to sanction loans of Rs 50,000 crore in the current year.

“Where is the slowdown,?” countered Singh, when asked about the impact of the slowdown on lenders to power projects.

Given the increased cost of funds, reflected in high interest rates, projects in some sectors are being delayed or deferred. Singh said that this was unlikely to be the case in the power sector.

“I don’t feel power projects are price sensitive,” asserted Singh. Given that the life of a power project extends to 25-40 years, high interest rates in one period are balanced by lower interest rates in another period.

Projects could get impacted if interest rates stay high, but that is unlikely given the steps being taken by the central bank, he added.

PFC is a dominant lender for the power sector with a market share of around 20 per cent in terms of investment in the 10th Five Year Plan.

OPENING NUCLEAR ACCOUNT
PFC has also initiated talks with Nuclear Power Corporation of India (NPCIL), the monopoly nuclear power generator, for funding NPCIL’s proposed expansion in the future, Singh said.

With the Nuclear Suppliers Group (NSG), a 45-member nuclear cartel, agreeing to India-specific waiver to commence civilian nuclear trade, NPCIL is chalking out aggressive expansion plans with nuclear reactors sourced from abroad.

“We would like to garner 20-25 per cent of NPCIL’s debt requirement,” said Singh, but he declined to reveal the target amount as project details are not yet finalised.

In additional with Vandana Gombar & Sudheer Pal Singh