Reliance Power’s Plants Face Delay as Credit Crunch Slows Loans

By Archana Chaudhary

Feb. 11 (Bloomberg) -- Reliance Power Ltd., the utility that sold shares in India’s biggest initial public offering last year, may face delays in building its largest coal-fired plants as the global credit crunch holds up loan approvals.

“The lead time for getting loans has increased,” Chief Executive Officer Jayarama Chalasani said by telephone in Mumbai.

The Mumbai-based company is 25 billion rupees short of the 145 billion rupees ($3 billion) it needs to borrow for its first 4,000 megawatt plant at Sasan in central India, Chalasani said in an interview. Reliance Power expects to raise funds for a similar plant at Krishnapatnam in the south by June, he said.

Reliance Power, controlled by billionaire Anil Ambani, sought to borrow $4 billion overseas for the projects by December and was forced to seek rupee loans instead after banks led by Standard Chartered Plc asked for more time to study proposals. A dispute over the supply of natural gas has stalled the utility’s largest plant in northern India and contributed to the 56 percent slump in its shares since they started trading a year earlier.

“The delay in raising funds may hurt Sasan’s completion schedule,” said Abhineet Anand, Mumbai-based analyst at Antique Broking Ltd. “The timing of raising funds is key to Sasan and other large Indian power projects.”

The company, which is yet to start producing power, has borrowed 120 billion rupees for Sasan from a group of 12 banks led by the State Bank of India and expects to get the rest by the end of this month, Chalasani said. Work on the plant in Madhya Pradesh state has already started to ensure that loan delays don’t affect the completion schedule, he said.

Overseas Loans

The rupee debt will be repaid when the company secures dollar-denominated loans from overseas banks, the CEO said. Reliance Power has appointed Standard Chartered as lead banker and China Development Bank Corp. for the overseas borrowings.

The overseas loan for Sasan was delayed because it is “the largest to be raised on a project-finance basis,” Chalasani said yesterday. “Banks, therefore, need more time to examine the expense side of the business including mining technology and capital and operating expenses. This is much more complicated and is completely different from financing any other power project.”

He declined to give a timeline for obtaining overseas loans.

The first phase of the Sasan project is scheduled to be completed by December 2011 and the second by March 2013. The Krishnapatnam plant in Andhra Pradesh is due to start in 2013.

The company was the lowest bidder for a similar-sized project at Tilaiya in the eastern state of Jharkhand, which is yet to be awarded by the federal Power Ministry. Each project may cost as much as 200 billion rupees, Chairman Ambani said Sept. 23.

Ultra Mega Projects

The three coal-fired plants are among the 12 so-called ultra mega power projects that the government is auctioning to help increase India’s generation capacity by 33 percent.

Reliance Power spent 26.86 billion rupees from the proceeds of last year’s share sale on the Sasan and Krishnapatnam plants and on other smaller projects as of Dec. 31, the company said in a Jan. 22 statement to the Bombay Stock Exchange.

“They will have to ensure that fund raising shouldn’t disturb project schedules,” said Mahesh Patil, who helps manage an equivalent of $8.8 billion at Birla Sunlife Asset Management in Mumbai.

Reliance Power’s 7,480-megawatt, gas-fired station at Dadri in Uttar Pradesh has been stalled because of a gas-supply dispute with Reliance Industries Ltd., India’s biggest company by market value, controlled by Anil Ambani’s estranged brother, Mukesh.

Gas Dispute

The dispute arose after the brothers split the Reliance group in 2005 following a family feud. Reliance Industries, an energy explorer and oil refiner, sought prices higher than contracted levels for gas to be sold to Reliance Natural Resources Ltd., which is controlled by Anil Ambani and procures fuel for his group’s power projects.

The Bombay High Court, which banned gas sales from Reliance Industries’ field in June 2007, temporarily lifted the restriction on Jan. 30. The fuel can now be supplied to customers other than Reliance Natural and state-owned NTPC Ltd.

Reliance Power raised $3 billion in India’s biggest share sale in February last year to help fund its $28 billion plan to build power plants. The company will install 28,200 megawatts, or 19 percent of India’s current capacity, in five years, according to proposals announced during the share sale.

The IPO attracted $189 billion of bids and shares were sold at as much as 450 rupees apiece. The stock fell as much as 21 percent on its Feb. 11 trading debut, prompting Reliance Power to give investors free shares to compensate them for the loss.

Investors got three free shares for every five held on May 30. The bonus issue reduced the cost of acquiring Reliance Power shares to 269 rupees for individual investors, 40 percent lower than the IPO price of 430 rupees. For large shareholders, who paid 450 rupees a share, the rate fell to 281 rupees a share.

No free shares were given to Ambani or the founder group. The stock closed at 103.25 rupees in Mumbai yesterday.

To contact the reporter on this story: Archana Chaudhary in Mumbai at achaudhary2@bloomberg.net.