REC to raise $250 mn via overseas loan

Rural Electrification Corporation (REC) plans to raise $250 million (about Rs 1,290 crore) through syndicated loans this financial year. The power sector lender has already secured the government's nod to raise funds.

“We would be trying to raise $250 million in February through syndicated loans. SBI Capital is our arranger. We have received a nod from ministry of power,” H D Khunteta, director (finance), told Business Standard.

The loan would be for a tenor of five years and the government-controlled non-banking financial company feels February would be an opportune time to go ahead with the plan. “The interest rate cost should be about 250 basis points above the Libor (London interbank offered rate), or nearly three per cent,” Khunteta said. If the entire amount is hedged, the total costs may rise to nine per cent, he added.

REC had earlier planned to raise $550 million abroad this financial year through syndicated loans and Swiss bonds. “We wanted to raise a lot more, but the markets have been very dull,” Khunteta said. Also, the approval to raise $200 million through Swiss bonds is still pending with the government, he added.

The euro zone crisis had led to an acute dollar shortage, owing to risk aversion. Because of this, several Indian firms had deferred their plans to tap funds abroad. While US treasury yields fell due to the sale of dollar-denominated bonds, investors still asked for higher yields, due to the poor market conditions.

The power sector lender has been trying to innovate and find new ways to raise funds at a cheaper rate. It had opted for a two-step funding method to facilitate funding for smaller power projects. Under this method, REC acts as an intermediary and raises funds from Chinese banks for financing various power projects in the country, including small power projects, which would otherwise face various hurdles in securing funds directly from foreign market, owing to low bargaining power.