Bina Power Seeks Interest Rates Cut

The Aditya Birla group promoted Bina Power Supply Company (BPSCL) has approached financial institutions for a reduction in interest rates for a long term loan of about Rs 1050 crore.

The company has suggested that institutions reduce the interest rate on the loan by one percentage point. Financial institutions had earlier agreed amongst themselves to sanction the rupee loan-cum non convertible debentures (NCDs) at 3.5 percentage points over the long term prime lending rate (LTPLR).

Top FI sources said that BPSCL was now seeking an interest rate of 2.5 percentage points over LTPRL for the rupee loan as well as NCDs. The current LTPLR being charged by institutions is about 14 per cent.

 

FI sources said that the company was seeking the reduced interest rates on two counts.

Firstly, FIs will avail of benefits under Section 10 (23G) of the Income Tax Act. This benefit should be passed on to it, says the company officials. Secondly, the company has sought the reduction in interest rate on the strength of the promoters.

Under Section 10 (23G) of the Income Tax Act, interest, dividends and long term capital gains from investments in infrastructure projects are exempt from income tax.

Since investments in power generation projects qualify under the head of infrastructure investment, FIs will gain tax exemption on the interest earned by them. BPSCL has also told FIs that they are prepared to settle for an interest rate of 3 per cent over LTPLR if benefits under Section 10 (23G) are withdrawn.

BPSCL has also pointed out that the promoters have agreed to pump in an additional equity of 10 per cent in the case of cost escalation in the project. BPSCL, which is setting up a 575 MW coal fired power project at Bina in Madhya Pradesh, is a joint venture between the Aditya Birla group and the British power major Powergen Plc.

The total cost of the project is estimated at about Rs 2600 crore. The equity component of the project is about Rs 785 crore.

While the Birla group will contribute about Rs 210 crore, Powergen will bring in about Rs 200 crore. The balance Rs 375 crore is expected to be raised through a combination of a public issue and private placement.

The balance Rs 1815 crore will be raised through debt out of which Rs 1050 crore will be the rupee component. Although BPSCL has finalised the coal supply agreement, the project has run into the escrow account problem being faced by all projects in Madhya Pradesh. Although the Madhya Pradesh government has signed MoUs for 8000 mw and was keen on according escrow cover to 3000 mw, FIs are prepared to lend only if the escrow cover is restricted to 2561 mw. This has led to a piquant situation where a number of power projects may not receive the escrow cover in the absence of which some of these projects may not take off.