Nabha Power secures approval to convert Rs 5,341-cr debt to equity

Nabha Power, a subsidiary of L&T Power Development, has received shareholders' approval to convert part of its debt of Rs 5,341 crore into equity in case of a default in future, according to filings with the government authorities.

L&T was earlier planning to sell the Punjab-based unit but as there is a delay in finding a buyer, the company has asked the shareholders for permission to convert part of the debt without giving any timeline to do the same.

Nabha Power made a profit of Rs 302 crore for the fiscal year ended March this year on revenues of Rs 4,129 crore.

Bankers said there was no question of Nabha Power defaulting on its loan as the company is backed by L&T and the enabling resolution was cleared by shareholders in case of any future default.

In an extraordinary general meeting held recently, shareholders also cleared the proposal to increase borrowings of up to Rs 14,400 crore and creation of security on assets of the company. L&T’s Nabha exposure is about Rs 2,400 crore and it will be released once the sale is complete.

When contacted, L&T did not comment on Nabha Power debt conversion or its sale.

Soon after its June quarter results, L&T management said the divestment of Hyderabad Metro and Nabha Power has been put on fast track. “We are looking at fast-forwarding the process of divestment of IDPL and Nabha power. It’s the top objective of the management. We do expect an early closure but in terms of timelines it would be a little speculative,” P Ramakrishnan, vice-president of L&T, had told analysts.

Nabha Power, which runs a 1,400-Mw supercritical thermal power plant at Rajpura in Punjab, was the first development project and the first power plant to be owned and operated by L&T. Nabha Power had signed a long-term power purchase agreement of 25 years from February 2014 with Punjab State Power Corporation for off-take of the electricity generated from the plant. Bankers said if the company maintains a minimum plant availability factor of 85 per cent it is allowed to make full recovery of fixed costs.

The energy charge consists of fuel charges, which are fully pass-through to PSPCL. Further, according to the PPA, the PSPCL is responsible for the power evacuation, thus ensuring long-term revenue visibility. 

But L&T decided to exit the project to free its capital and invest in new technology areas and new projects. Apart from Nabha Power, the company is also selling the Hyderabad Metro project. Bankers said the sale of the both projects is imminent with L&T finalising the transactions with potential buyers.