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!

Hectic bidding season ahead for NHAI road projects

Source:

Projects Monitor (28 Apr 2010): http://bit.ly/bDeExy
Projects Monitor (27 Apr 2010): http://bit.ly/bePZ05

Economic Times (26 Apr 2010): http://bit.ly/arL1St
NHAI Work Order Plan 2009-10: http://bit.ly/cpOMRU
NHAI Work Order Plan 2010-11: http://bit.ly/anme4Q

By the end of 2009-10 NHAI had awarded only 34 projects for 2,988 km as opposed to the original target of 23,472 km of projects distributed through FY10 and FY11. As per the revised work plan, NHAI now plans to award road projects covering 18,581km by the end of FY10. After admitting that India will not be able to meet its target of adding 20 km of highways every day, the Indian Transport Minister Mr. Kamal Nath seems to be stepping on the gas and pushing through as many projects as possible.

RfPs have already been invited for 3000 km of projects, while projects totalling another 6,317 km are lined up for bidding in December 2010. The lion's share of the projects awarded in 2009-10 went to IRB Infrastructure Developers Ltd, followed by IL&FS Transportation Network Ltd. and Reliance Infrastructure Ltd, but the large number of projects coming up should ensure a significant increase in opportunities for other companies as well. 

Adding to the mix are the recently updated bidding norms for NHAI BOT projects (http://bit.ly/9XfXax), which are likely to force companies into reducing the cycle time to financial closure. This might turn out to be a hectic and profitable year ahead for the infrastructure industry and also for service providers supporting the industry viz. environmental & engineering consultants, EPC/O&M contractors, financial consultants etc.

NHAI modifies bidding norms for highway projects

Source:

Economic Times (22 Mar 2010): http://bit.ly/cDYdoP

Financial Express (6 Apr 2010): http://bit.ly/ayZyGD

Economic Times (30 Apr 2010): http://bit.ly/cJk6oz

This is not directly finance related, but consultants would do well to be aware of the additional norms that apply to bidders for BOT based road projects:

• A bidder shall not be eligible for bidding if the bidder, its member or associate has been declared by the authority as the selected bidder of three or more projects that are yet to achieve financial closure by the bidding date. The bidder/member/associate may have been named selected bidder by itself or as part of the consortium. A bidder is the 'selected bidder' when a Letter of Award has been issued to it by the authority. Currently financial closure must be achieved within 180 days of the signing of the Concession Agreement, which itself is usually signed within 45 days of the issuance of the LoA.
• The concessionaire must engage an EPC contractor that has experience of at least one completed highway of a minimum of 20% value of the estimated project cost of the awarded project in the preceding five years.
• The Net Worth criteria for the concessionaire has also been modified to apply to both the consortium and individual partners. For consortia, the net worth criteria has three slabs:
• In the first slab are projects worth up to Rs 2,000 crore with a net worth criteria of 25 per cent of the total project cost (TPC).
• Projects worth between Rs 2,000 crore and Rs 3,000 crore will attract a total net worth criteria of Rs 500 crore plus 50 per cent of the cost above Rs 2,000 crore, e.g. for a project worth Rs 2,600 crore, the concessionaire’s net worth has to be Rs 800 crore.
• For projects with a TPC of above Rs 3,000 crore, the concessionaire should have a net worth of Rs 1,000 crore, plus 100 per cent of the cost above Rs 3,000 crore. To elaborate further, if a concessionaire bids for a project worth Rs 3,600 crore, he/she must have a net worth of Rs 1,600 crore.
• Additionally each member, irrespective of the equity stake in the project, must demonstrate a Net Worth of 12.5% of the project cost (up from 5% originally) in the previous year to be part of the consortium. 

These changes are likely to turn the tables in favour of the larger domestic players and international bidders, especially for the planned 'mega highway' projects that cover 400+ km stretches at a cost of Rs. 4000 cr per project. Ten such projects have already been identified by the road transport and highways ministry.

However, there is also a provision that enables smaller companies to bid despite not satisfying the net worth criterion. These companies would be allowed to participate in the bidding process as long as they raise adequate equity from the market before submitting the bid. Raising equity will increase the net worth of the company even though the effect would only be visible on the financials at the end of the financial year.

This is likely to result in frenetic deal-making and JV formations between domestic players and international entrants, perhaps even a few infrastructure IPOs if the smaller players don't want to miss out on the opportunity. Indeed the first of such JVs has already been declared (http://bit.ly/cg2zSb), a mammoth $ 2 bn deal involving Tata, Actis and Atlantia.

India eyes sugar import tax to aid farmers, mills

Source:

Reuters India (16 Apr 2010): India eyes sugar import tax to aid farmers, mills

Livemint/WSJ (6 Jan 2010): Govt may defer sugar exports for 14 months

India could slap an import tax on sugar before the start of its 2010-11 season in October, to protect farmers and millers from a flood of foreign supplies as global prices crash and the rupee hovers at a 19-month peak. India's sugar cycle is also set to flip to a surplus, from the sharp deficit that boosted New York prices, as farmers have planted more cane in response to higher prices last year.

Last year India permitted duty-free sugar imports and set limits on stocks as output fell sharply and prices soared. Now, millers want the government to prop up falling prices. A tax by the world's top sugar consumer would discourage the imports India needs to build up stocks and put more pressure on New York raw sugar futures, which crashed to an 11-month low in April from a 29-year peak two months ago.

However at a time when the Indian Government is struggling to contain food inflation, it may simultaneously choose to impose a ban on sugar exports (as between June 2006 and January 2007 when the country reaped a bumper crop) or defer sugar exports by a few months. This temporary abolition of the export obligation will, however, come at a price. Sugar companies that had imported sugar earlier will have to pay a custom duty that could be as high as 60%.

This could result in a windfall gain for sugar refineries functioning as SEZ units (e.g. Silk Road Sugar Ltd - the JV between EID Parry and Cargill at the Kakinada SEZ, and the proposed refinery by Shree Renuka Sugars at the Mundra SEZ in Gujarat) as they are exempt from duties on imported raw materials under the SEZ Act of 2005 and put them in an advantageous position vis-à-vis refineries operating from the DTA. This may force the Government to look at ways to level the playing field, such as duties on sales to DTA as in the case of SEZ based power generating units earlier this year.

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.