Daewoo May Shed Majority Stake In Korba Project

Korean major Daewoo is set to divest its majority stake in the Rs 4,500 crore Korba power project in Madhya Pradesh. The move has been prompted by the funds crunch induced by the recent Southeast Asian crisis.

Daewoo had initially planned to retain 100 per cent in the 1,000mw project, but is now seeking investments of Rs 700-1,000 crore. The Korba project equity is valued at around Rs 1,380 crore.

Cash-strapped Daewoo is now struggling to mobilise funds for the project. Company sources confirmed the move but ruled out a 100 per cent stake sale.

Although the company has not firmed up plans on the extent of divestment, sources said Daewoo may sell up to 74 per cent or retain a majority stake and shed 49 per cent.

 

If Daewoo chooses the former option, it will have to rope in outside investment worth around Rs 670 crore. The latter scenario would involve outside investment worth about Rs 1,000 crore. Sources said Daewoo has already approached some Indian financial institutions and some investment banks as potential investors.

A memorandum of understanding (MoU) signed between Daewoo and the state government requires the company to retain at least 26 per cent. If Daewoo divests more than 74 per cent, the state government can cancel the entire project.

The project is in an advanced stage, with the promoters having obtained most of the requisite clearances from both the state government and the Centre. The promoters are also expected to sign the coal supply agreement shortly with Coal India.

The project was among six power projects in the state which were extended an escrow cover by the state electricity board. Daewoo has already selected ABB as the erection procurement and construction contractor for the project. The whole contract is valued at around Rs 3,000 crore.