KSK Energy CFO says GMDC can’t back out on coal-supply pact

KSK Energy CFO says GMDC can’t back out on coal-supply pact
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First Published: Thu, Jun 19 2008. 12 49 AM IST
Updated: Thu, Jun 19 2008. 12 49 AM IST
Mumbai: Gujarat Mineral Development Corp. Ltd (GMDC) cannot back out from its agreement to supply coal for KSK Energy Ventures Ltd’s Wardha Chhattisgarh power plant, though the state-owned firm can choose not to pick a stake in the project, according to S. Durgashankar, group chief financial officer, KSK.
“It is an agreement on which the project is based, and we have invested significant amount of money in it,” he said in an interview ahead of a press conference on KSK’s initial public offering (IPO).
GMDC executives could not be reached for comment late on Wednesday.
Mint reported on Wednesday that KSK has added a risk factor in its final offer document—about a letter from GMDC that the coal supply and investment agreement is subject to government approval. “Our current operations and our expansion plans have significant fuel requirements and we may not be able to ensure that adequate fuel will be available to meet our power generation requirement,” the offer document said.
KSK will open bids for its Rs883 crore public float, comprising 10% of its equity, on 23 June, and the proceeds will be invested in its Wardha Power Co. Pvt. Ltd unit, which is developing the project.
GMDC and KSK have three agreements dating back to late-2006 which say GMDC will supply coal for the 1,800MW plant; KSK will supply power to the Gujarat government and GMDC will get an option to pick up 26% in the project.
Senior executives of KSK said the agreements on coal and power supply are not optional and cannot be scrapped.
Any change in the agreements can result only from political pressure, said one banker who is part of the issue, but did not want to be named.
However, KSK’s equity ownership in GMDC, according to another investment banker, could ensure that the agreements remain intact.
KSK owns 3.78% of GMDC, or about 15% of its shares in the market. Its promoter, Gujarat government, owns 74% equity.
KSK is the second large private power sector firm to hit the primary markets this year. Reliance Power Ltd, part of Reliance-Anil Dhirubhai Ambani Group, had floated a $3 billion initial public offer in January.
The document says KSK had also signed a memorandum of understanding (MoU) with GMDC for another project— the Rs7,430 crore Wardha Naini project. It has also signed MoUs with Pondicherry Industrial Promotion Development and Investment Corp. Ltd, and Madhya Pradesh State Mining Corp. Ltd.
Another important risk factor for potential investors, according to the document, is the high level debt that could affect KSK’s ability to obtain additional financing. The estimated cost of its projects under development is Rs34,900 crore, of which Rs26,200 crore will be raised as debt.
The document says financial institutions, including Axis Bank Ltd, Infrastructure Development Finance Co., Bank of Baroda Ltd, Life Insurance Corp. of India and Indian Bank, have given sanction letters to partly fund the projects.
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First Published: Thu, Jun 19 2008. 12 49 AM IST