Lanco in talks with four buyers for Udupi project

Mumbai/New Delhi: Gurgaon-based power, mining and construction company Lanco Infratech Ltd is in talks with four firms, including Kolkata-based CESC Ltd, for the sale of its 1,200 megawatts (MW) Udupi Power Corp. Ltd in Karnataka as it attempts to pare its debt burden.

Lanco which is looking at a valuation of around ₹ 3,000 crore for the imported coal-based thermal power project, recently announced the sale of its 70MW Lanco Budhil hydropower project and two smaller plants of 5MW each in Himachal Pradesh to Hyderabad-based clean energy producer Greenko Energies Pvt. Ltd for €77 million (around ₹ 655 crore).

While these transactions are also an indication of the growing investor interest in the Indian power business, Lanco’s actions are inspired by the corporate debt restructuring (CDR) agreements that the company has entered into. Its earlier attempts to reduce debt by selling off assets had met with muted response.

A person close to the development said Lanco’s recent sale of Budhil hydropower project and two other smaller plants in Himachal Pradesh was part of achieving certain milestones mandated by lenders in the debt restructuring exercise.

Speaking on condition of anonymity, he added that the sale of the Udupi project is also part of this milestone and this would enable Lanco Infratech to draw some funds from lenders as per the CDR agreements.

In December, Lanco Infratech’s bankers approved a proposal to restructure a total of ₹ 7,700 crore of the company’s debt, allowing the power generator a two-year interest holiday.

Lenders have agreed to give further loan of upto ₹ 2,500 crore based on the company achieving certain milestones, including selling off some assets, the person added.

A senior Lanco Infratech executive requesting anonymity confirmed the development and said, “We are in talks with four companies including CESC. The final decision may take a month. This is an operating asset. While we have been facing some tough times, the current year bodes well for the company with our attempts to reduce debt through sale of assets.”

He declined to name the other three firms, apart from RP-Sanjiv Goenka Group’s flagship electricity generation and distribution firm. While a Lanco Infratech spokesperson declined comment, a CESC spokesperson said, “We neither confirm nor deny the development.”

Investment bank Macquarie Group is advising Lanco Infratech selling Udupi project while consulting firm EY advised Greenko on its purchase of the Budhil project from Lanco.

While Maqcuarie said it would not comment on market speculations EY confirmed its role in the Budhil deal

Lanco Infratech, which has 16 operating group companies, produces power, mines coal and builds roads. It wants to sell some assets to pare debt and fund other businesses. High fuel costs and low capacity utilization have increased Lanco’s financial stress.

Analysts were sceptical about Lanco’s performance.

“We note that losses over the past several quarters have resulted in 47% of Lanco’s FY12 consolidated net worth getting eroded. Consequently, the company’s gearing stands at a high of 12x as on Dec 2013. Receivables continued to remain high at ₹ 27.7 bn, down marginally from the Sep 2013 levels ( ₹ 29.4 bn),” Credit Suisse India Research wrote in an 3 February report.

“The company expects the recently approved debt restructuring, initiatives on equity infusion strategic investors and asset sales to address group’s cash flow concerns,” the report said.

Indian companies, especially those operating in the infrastructure space, began selling assets to reduce debt, a fallout of rising interest costs and decreasing margins in a sluggish economy.

There have been several transactions indicative of investors’ interest.

JPMorgan Asset Management invested $150 million in the Bhaskar Group’s Diliigent Power Pvt. Ltd in May 2013; Nagarjuna Construction Co. Ltd has announced the sale of 45% equity in 1320MW coal-fired power plant at Krishnapatnam in Andhra Pradesh to Sembcorp Industries Ltd of Singapore for ₹ 848 crore; and Meenakshi Energy and Infrastructure Holdings Pvt. Ltd has agreed to sell a 74% stake in a 1,000MW coal-fired power project to GDF Suez.