Gail Seeking Loans To Fund Projects

The Gas Authority of India Ltd (GAIL) is negotiating a loan of Rs 500 crore from commercial banks, besides trying to finalise a $50 million loan from the Export Import Bank of Japan.

The loans are being sought as part of a resource mobilisation strategy to fund a series of projects including Uttar Pradesh Petrochemicals, which is being set up in Etawah, in UP, at a cost of Rs 2,500 crore.

The Etawah project will manufacture high-density polythelene and linear low-density polythelene. A large part of the construction work for the project, that is located at Auriya in Etawah, has been completed at a cost of Rs 1,500 crore.

 

The project will depend heavily on the HBJ gas pipeline, besides some other minor gas pipelines connected to the plant site.

GAIL sources said the project was expected to be commissioned in the next few months.

The project is being built on a 1:1 debt-equity ratio, that is, GAIL will internally raise half of the project cost.

GAIL is also looking at the possibility of further reducing the debt component to bring down the interest cost.

The public sector company has already obtained a loan of Rs 100 crore from the Oil Industry Development Board on an interest rate of 16 per cent.

It has also raised $25 million in foreign currency from the Tokyo branch of Bank of India at a rate of 75 basis points above the London inter-bank offered rate (Libor).

The favourable rate could be managed because of the profitable nature of the venture and the high equity-debt ratio.

The loan being negotiated with the Exim Bank of Japan is untied in nature.

The cost of the loan, denominated in Yen, will depend on the interest rates in Japan and the exchange value of Yen.

GAIL prefers to obtain loans separately from different banks, instead of creating a consortium of banks.

We are in the process of negotiating with various banks. But the loans have not yet been finalised, a GAIL source said.

Banking circles said the State Bank of India and the Bank of India had made a lot of headway in the negotiations for the loans.