R-Power to save Rs 65 billion by Sasan project overseas loans - Ties fresh offshore loans from Chinese banks on low interest rates

Anil Ambani-led Reliance Power will save about Rs. 6,500 crore in interest costs on funding its Sasan power project, as it has tied up fresh offshore loans from Chinese banks on low interest rates. The estimated interest cost savings through the offshore loans amounting to $1.1 billion (over Rs. 5,000 crore) is even higher than R-Power’s total equity contribution for the ultra-mega power project (UMPP), sources said.

The company’s 4,000 MW project has received final commitments for this loan from Chinese banks, subsequent to which the interest outflow for the project will reduce by over Rs. 6,500 crore, they added. The fresh funding has reduced the total interest cost for the project from Rs. 6,175 crore, in the initial financing arrangement, to Rs. 9,666 crore

after the closure of offshore loans at low interest rates, the sources said.

When contacted, an R-Power spokesperson declined to give details, but said ”it is our constant endeavour to optimise the financing of our projects to increase the value to our shareholders.”

The company had tied up initial financing, predominantly in rupee loans, for the project in April 2009 with local banks and financial institutions, led by public sector giant SBI. The final approval for the fresh term loan facilities totalling $1,114 million was given by Bank of China (BOC), China Development Bank (CDB) and The Export Import Bank of China (C-EXIM) (along with Standard Chartered Bank) during the India visit of Chinese Premier Wen Jiabao in December 2010.

This funding for the Sasan UMPP followed the Exim Bank of the US providing final approval in November 2010 for a $917 million loan guarantee to the same project. The off-shore lenders traditionally do not have appetite for long maturity loans, making these loans unattractive for infrastructure projects. However, R-Power has managed loans with a maturity period of as long as 15 years. Besides, the banks did not ask for bank guarantees or sponsors’ support and relied only on the projected cash flows of the project for amortisation of their loans, the sources said.

Offshore loans have helped R-Power to diversify its sources of financing and reduce dependence on the domestic commercial banks and financial institutions. The estimated project cost of about $ 4.3 billion of the project in Sasan, Madhya Pradesh, is being financed by equity contribution of $1.2 billion and term loans of $3.1 billion.