Mumbai: Wind-based power producer Caparo Energy (India) Ltd (Ceil) has raised $78.5 million (Rs 353.25 crore) to increase capacity, through the issue of preferred shares to the India Infrastructure Fund, which is managed by IDFC Project Equity Co. Ltd, a subsidiary of Infrastructure Development Finance Co. Ltd (IDFC). The funding is mezzanine for a six-year term and will not dilute equity, Ceil said in a press release. Mezzanine funding typically includes both equity and debt components and comes at a high interest rate.
“Only when we fail to repay at the end of six years will IDFC get a minority stake in the company,” Ceil’s chief financial officer Vikram Kailas said over the telephone. The interest rate is around 14%.
The company, a fully owned unit of London-listed Caparo Energy Ltd, said that it expects to repay the funds through internal cashflows, sale of senior debt instruments, bonds and other debt refinancing within the next three-five years.
Ceil is in advanced stages of negotiations to raise another $33.5 million on terms similar to the first tranche.
The fund-raising will help it finance projects with a combined capacity of around 700 megawatts (MW) without any equity dilution, chief executive Ravi Kailas said. IDFC did not want to comment on the transaction, a member of its corporate commucation team said.
Ceil has a capacity of around 100MW and has three projects in Rajasthan, Gujarat and Maharashtra. An additional 750MW will be generated from projects in Gujarat (300MW), Andhra Pradesh (100MW), Maharashtra (100MW), Rajasthan (75MW), Karnataka (100MW) and Tamil Nadu (75MW).
Funding for the remaining capacity will be explored either in the fourth quarter of the current calendar year or the first quarter of next calendar year, Kailas said. In an email, Mark Thompson, a London-based analyst with Religare Enterprises Ltd, said the concern was on the cost of mezzanine finance. Thompson said the coupon on mezzanine finance is typically charged post-tax.
“If this is correct and our assumption of a 14% equity discount rate is also correct, this means any preference coupon of 14% or higher is value-destructive for shareholders (unless Indian interest rates rise substantially),” he said.