BackMaharashtra’s power utilities look to raise money by issuing bonds
If successful, this would be among the first instances of a state utility raising money through a bond issue
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Mumbai: Maharashtra’s three state-owned power utilities are looking to raise money by issuing bonds as a way to refinance high cost debt and reduce their interest burden.
If successful, this would be among the first instances of a state utility raising money through a bond issue to refinance existing debt and could help set a precedent for other states where distribution companies are struggling under heavy debt.
In the case of Maharashtra, the three utilities—Maharashtra State Power Generation Company Ltd. (Mahagenco), Maharashtra State Power Transmission Company Ltd. (Mahatransco) and distribution company Mahavitaran Ltd—have total debt of ₹ 54,000 crore. The interest on this is about ₹ 5,000 crore per year, said a senior official from the state government’s energy department.
“We plan to retire some part of the debt by raising bonds which will be issued at 8% or 9% and these bonds will be tax-free bonds under government of India’s infrastructure bond scheme," said the official, adding that the bonds will come with a state government guarantee to reduce the cost at which the money is raised.
The official didn’t want to be named. A second official from one of the utilities confirmed the plan on condition of anonymity.
According to experts, utilities with healthier balancesheets can consider rasing funds from the market to replace bank debt. Maharashtra could be a test case for this.
“The (Maharashtra’s) utilities are all well rated and some of the healthiest ones in the country. Apart from some unpaid bills, there aren’t any major losses there," said an official with a rating agency requesting anonymity.
According to Kameswara Rao, leader of the mining, utilities and energy practice at audit and consultancy firm PwC India, distribution utilities in the western region are generally profitable, have marginal reliance on subsidy, and could gain from an expected upside in economic growth. These factors may help draw investors to a bond issue by these firms.
“Power utilities with strong operational performance have an opportunity to reduce interest outgo by replacing expensive debt contracted earlier. In fact, the conditions are right for some of them to raise equity too with a possible listing," said Rao.
Vishwanath Nair contributed for this story
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