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FIs, banks favour AES taking over DPC

C. Shivkumar

BANGALORE, July 2

Financial institutions (FIs) and banks have indicated that they would be favourably inclined to a takeover of the Dabhol Power Company's (DPC) equity by another American energy major, AES. AES has already indicated that it could takeover Enron's equity a nd run the power plant.

FI sources said here that this takeover would be in the best interests of all the parties involved in the project, including consumers. This was in view of AES's experiences in Orissa. AES operates the Orissa Power Generation Corporation Ltd in which it has a 49 per cent stake. AES also runs a distribution company -- Centco, in that State.

The sources said that takeover by AES could also help DPC reduce some of the debt financing costs -- both in phase one and phase two. The debt portion in phase one (826 MW) is about $644 million.

In phase two (1,624 MW) the debt financing component is about $1.414 billion. All these loans have been raised at interest rates in the region of 250-350 basis points over the LIBOR. In the second phase especially, the debt financing costs were high sinc e it came close on the heels of the Pokhran nuclear test.

The sources said that if these loans could be refinanced, then the interest burden on the project could be brought down substantially. The sources estimated that given the credit rating of AES in international financial markets, the DPC loans could be re financed at spreads of just 100 basis points over LIBOR.

Besides, rates for external commercial borrowings have considerably softened in the last few months. In fact, the last few loans that have been raised in the international markets by top Indian corporates without sovereign guarantees have all been at spr eads of under 100 basis points.

The sources said that the AES takeover could also stave off invocation of the deferred payment guarantees (DPG). In both phases, the guarantee obligations of the domestic FIs and public sector banks are close to $800 million. Technically, foreign credito rs could invoke these guarantees in the event of payment defaults by DPC. In addition, FIs and banks have direct exposure of about $429 million in both phases.

The sources said that invocation of the guarantees and a simultaneous classification of loans into non-performing assets, would hurt the balance sheets of the FIs as well as the banks. The banks likely to be impacted include the State Bank of India and C anara Bank which have participated in both the foreign currency as well as the rupee loan syndications of DPC.

The sources said that the only alternative to prevent any drastic impact on the FIs was to either find a resolution to the current stand-off between MSEB and Enron or allow other companies, acceptable to lending institutions to buy out the DPC equity fro m Enron.

The sources said that taking over the management of DPC could be considered only as a last resort by the FIs. This can be technically done, since the FIs have a physical asset cover on the fixed assets of DPC on both phase one and phase two as part of lo an and guarantee covenants.