The project, being executed at a capital cost of Rs 10,000 crore, will be funded with Rs 6,730 crore of debt and Rs 3,360 crore of equity. The sponsors will be required to make 25 per cent equity contribution upfront before the first disbursement of loan, according to the draft term sheet.
IHB’s sponsors are Indian Oil Corporation (50 per cent stake), Hindustan Petroleum Corporation (25 per cent stake) and Bharat Petroleum Corporation (25 per cent stake), and are collectively referred to as oil marketing companies (OMCs). IHB is looking at loan tie-ups with multiple banks.
Rating agency India Ratings in a statement said it draws comfort from the financial strength of the sponsors with strong access to capital markets and long-standing banking relationships. The liquidity is also supported by the sponsor undertaking to arrange financing to fund any cost overruns and maintenance of minimum debt service coverage ratio (DSCR) of 1.0x on a year-on-year basis.
The sponsors have committed to offtake volumes on a ship or pay-basis to ensure a minimum debt service coverage ratio (DSCR) of 1.0x on a year-on-year basis, infuse project equity (Rs 3,360 crore). They will arrange financing to fund any cost overruns and maintain an equity holding of 51 per cent through the loan tenor.
IHB provides a business advantage for the sponsors by providing a dedicated facility for moving LPG from their own facilities and import terminals to the consumer market in the parts of western, northern, and central India. The proposed pipeline will connect 22 LPG bottling plants of the OMCs in Gujarat, Madhya Pradesh, and Uttar Pradesh.
The pipeline becomes important from the point of cost savings, given that bulk of the current demand is being moved by road transport, which is expensive compared to pipeline transportation.
Nearly 50 per cent of the domestic LPG connections are concentrated in northern and western India.
With domestic LPG production growth likely to remain limited, increased reliance on imported LPG further increases the importance of the pipeline. It would connect to LPG importing facilities at Kandla, Mithi-Rohar, Dahej, and Pipavav, thus lowering offtake risk. India imported 13 million tonnes (mt) of 25 mt LPG consumed during FY19.