Reliance Power achieves closure for Sasan, finally

Domestic banks extend around Rs 15,000 cr as loans; announcement this week.

Reliance Power has finally managed to achieve financial closure, the process of tying up funding, for one of India’s largest coal-based power projects, the 4,000 Mw ultra mega power plant at Sasan, Madhya Pradesh, with the India Infrastructure Finance Company Ltd (IIFCL) agreeing to lend around Rs 2,500 crore.

The Anil Dhirubhai Ambani Group (ADAG)-promoted Sasan Power was Rs 2,500 crore short of the roughly Rs 15,000 crore it needed to borrow for the project. The company will make an announcement this week.

IIFCL will give a Rs 400 crore loan and its overseas subsidiary IIFCL Plc around Rs 2,100 crore. A consortium of 12 domestic banks have already committed around Rs 12,500 crore, with State Bank of India and Power Finance Corporation leading the pack, with Rs 3,500 crore and Rs 1,800 crore, respectively. Rural Electrification Corporation and Hudco are the other major lenders.

IIFC Plc is leveraging the country’s foreign exchange reserves to fund Indian projects. The assistance is expected to be in the form of funding for purchase of equipment.

Asked about the transactions, a Reliance Power spokesperson said the company was at an advanced stage of achieving financial closure.

But sources in the banking industry associated with the project said the documentation work will be completed by Tuesday and a formal announcement will be made soon after.

Sasan will be supplying power to seven states in western and northern India. The project is estimated to cost Rs 20,000 crore, to be funded at a debt equity ratio of 75:25.

The company had earlier planned to raise funds overseas but was forced to seek rupee loans instead, after banks led by Standard Chartered asked for more time to study proposals. The rupee debt will be repaid when the company secures dollar-denominated loans from overseas banks.

Reliance Power has already started work on the Sasan plant to ensure the project stays on schedule. The first phase is scheduled to be completed by December 2011 and the second by March 2013.

Of the four ultra mega power projects (UMPPs) awarded so far, Tata Power-promoted Mundhra is the only project to have achieved financial closure. Sasan has been in the market to raise resources for two years.
 
Unlike Mundhra, the loans for Sasan are being raised without a corporate guarantee. The ADAG group has also bagged contracts to develop UMPPs in Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand), for which fund-raising is yet to start.

In recent weeks, at least three other infrastructure projects have achieved financial closure, indicating an improvement in the credit environment. Apart from Sasan, funds worth nearly Rs 9,000 crore have been tied up for three other projects. This includes the second phase of the Krishnapatnam Port project (Rs 3,000 crore), Reliance Infrastructure-promoted Delhi Airport Metro Express project (Rs 2,000 crore) and BGR Energy’s engineering, procurement and construction works (estimated at Rs 4,000 crore).

Further, IIFC Plc has approved loans for six power projects, including projects being developed by Tata Power, Vedanta and one at Nihan.

The only concern seems to be the lack of funding from overseas markets; all the projects have depended on local banks and financial institutions to raise resources.

“While overseas lenders are not active in the market, IIFC Plc is filling up the gap. But for things to normalise, overseas markets need to revive,” said a banker.

IIFC Plc has already received $250 million of the $5 billion from RBI from foreign exchange reserves.