Jindal Power ties up Rs 10,057 cr from 23 lenders

Source:

NDTV Profit (6 Apr 2010): http://bit.ly/colEwl

Domain-b.com (7 Apr 2010): http://bit.ly/aeKL42

Jindal Power has achieved financial closure for its Rs. 13,410 crore expansion project of an existing 1000 MW thermal power plant to 2400 MW capacity at Tanmar in Raigarh district of Chhatisgarh. The execution of the loan agreements was concluded on the 26th March, 2010.

The total project project cost of Rs. 13,410 crore is financed on a Debt-Equity ratio of 3:1, with an RTL of Rs. 10,057 crore and Equity/Internal Accruals of Rs. 3353 crore. A 23 member consortium has sanctioned the loan at a average rate of 10.50% under what they are calling a 'unique two-tranche structure to meet the requirements of Jindal Power and the lenders'. SBI Capital Markets was the sole adviser and arranger of the deal. JM Financial, Enam Securities, Deutsche Equities, Goldman Sachs, ICICI Securities, UBS Securities and SBI Capital Markets were the lead managers for the issue.

Quoting a press release: "Under the financing arrangement, SBI Capital Markets has framed a two-tranche structure to meet the requirements of both Jindal Power and lenders. The blend of project finance and conventional debt financing has helped both parties to arrive at an optimal risk allocation structure. While the structure gives Jindal Power more flexibility in its other borrowing programmes by isolating project risk, lenders derive comfort from the company’s balance sheet".

Sounds to me like an SPV arrangement funded by a term loan, and perhaps a slice of debt to Jindal Power, injected into the SPV as equity. This allows Jindal Power to keep most of the debt off its financials, while retaining some of it on its own balance sheet to reduce the overall risk attached to the entire debt component. The last part is pure conjecture, any additional information/correction is more than welcome!

Govt rules out tax holidays for power sector, port trusts

Source:

Economic Times (23 Apr 2010): Govt rules out tax holidays for power sector, port trusts

The government has rejected demands for tax exemption on setting up power plants, state maritime boards and port trusts, saying it was inconsistent in a moderate tax regime. 

Regarding tax holidays for setting up power plants, Minister of State for Finance S S Palanimanickam said the power sector, particularly the private sector, has significantly matured, benefitting from direct tax holidays for almost two decades and there was no need for any extension. 

"There is no proposal under consideration of the government to provide further extension of tax holidays for setting up of power plants in terms of direct taxes," he said. The minister added that tax incentives like exemptions and deductions are economically inefficient, inequitable, lead to revenue loss, breed rent-seeking behaviour, increase compliance costs and enhance the administrative burden.

"The case for tax incentives is further weakened in the existing tax regime of moderate tax rates. Therefore, as a matter of principle, government has taken a considered policy decision not to support tax incentives and to allow minimal exemptions and deductions," he said. 

However, in the power sector, as far as indirect taxes are concerned, all items of machinery and equipments required for initial setting up mega power projects are fully exempt from duties and customs. All such goods domestically procured for initial setting up of mega power plants awarded on an international competitive bidding basis or tariff-based bidding are also fully exempt from payment of central excise duties. 

"These exemptions are available without any specific time limits," Palanimanickam said.

The tone of this statement coupled with the non-extension of the STPI and EOU schemes in the 2010-11 budget indicates that Government policy may be trending towards a moderate taxation regime with minimal direct tax incentives in the 5-10 year timeframe. Watch out for the new DTC policy due later this year!

No plans for new import duty on power equipment

Sources:

Economic Times (22 Apr 2010): No plans for new import duty on power equipment: Govt

FT (23 Mar 2010): China suspends India power projects

No new duty will be imposed on imports of Chinese power equipment, the government informed Parliament today. 

The combination of a shortage of power generation capacity and a dearth of practising engineers makes India an attractive market for Chinese power equipment manufacturers. Moreover Indian manufacturers are unable to match, at least for the moment, the pricing of Chinese equipment and the project execution capability brought in by these companies, thus leading to a one-sided contest. By some estimates Chinese equipment accounts for approximately 25% of newly installed capacity.

BHEL is the country's largest public sector power equipment player and manufactures units that can generate 10,000 MW of power annually. The company plans to take this capacity upward to 15,000 MW by the end of the current financial year. It is therefore no surprise that BHEL was demanding a 10 per cent customs duty on import of equipment for projects awarded through the international competitive bidding route and mega power plants. At present, 5 per cent customs duty is imposed on equipment imported for projects awarded through the ICB process, while there is no duty on power equipment sourced for mega projects with a capacity of 1,000 MW and above. 

While financing institutions have recently been nudging power producers towards installation of  Indian or Japanese equipment citing quality concerns and lower operational life, the significant cost advantages of Chinese equipment ensure that there is no change in this trend at least for the time being.