Rural Electrification Corp. (REC), one of the two largest lending organizations in the Indian power sector, plans to borrow $1 billion (Rs4,040 crore) in the current fiscal year through external commercial borrowings (ECB).
“We have approached the finance ministry and Reserve Bank of India to give us permission to borrow this amount through the ECB route,” A.K. Lakhina, chairman and managing director, REC said.
Explaining the rationale for tapping the ECB route, Lakhina said, “ECBs offer us the advantage to reduce our interest rates and are attractive even after hedging.” REC has raised ECB in yen equivalent to $200 million in the last fiscal year.
The company’s need to borrow also stems from the shortage of funds allocated for the power sector during the eleventh plan period. Of the $257.9 billion that is needed, the sector is expected to fall short by around $100 billion.
The power sector plans to add another 78,000MW by 2012, over and above its present capacity of 128,000 MW. “If the financial closures of the projects is achieved by 2008-09, these targets can be achieved,” Lakhina said.
Abhishek Puri, an analyst with ASK Securities said, “Complete achievement of the 78,000MW target is not possible. We feel that an addition of 55,000-60,000MW is a possibility. This would also mean an automatic reduction in the funding requirement. However, due to volatility in the international markets, raising funds from overseas may be (a) bit of a problem.”
Rural Electrification Corp. has disbursed project funding to the tune of Rs15,000 crore in the last fiscal year and plans to touch the Rs40,000 crore mark in the current fiscal.
In another development, the company plans to file its draft red herring prospectus for its initial public offering (IPO) this month and has already appointed ICICI Bank Ltd, Infrastructure Leasing & Financial Services Ltd and SBI Capital Markets Ltd as the book running managers.
REC will issue 156 million equity shares, corresponding to 20% of its current paid up capital. The Union cabinet had given the go-ahead in February to sell 10% of its holdings in REC by piggybacking on fresh equity offerings of 10% in REC. The company’s share sale was to kick-off earlier, but was delayed as it did not have the requisite number of independent directors on its board, as stipulated under clause 49 of the listing agreement between publicly-listed companies and stock exchanges. National Hydroelectric Power Corp. and Power Grid Corp of India Ltd are other government-owned firms whose IPO has been delayed for a similar reason.
“The issue of independent directors will be resolved as they are expected to be appointed shortly. We need five of them on our board. We are also expecting a better evaluation,” said Lakhina.