Tata Power, SN Power to invest Rs 15,000 cr in hydro projects

Friday, October 30, 2009

Mumbai: Tata Power Company and Norwegian firm,
SN Power, plan to invest Rs 15,000 crore over the
next five to eight years to develop
hydro-power projects in India and Nepal.

The two utilities today announced an exclusive partnership with an
aim to have 2,000 MW under construction or operation by 2015
and a total of 4,000 MW by 2020, a Tata Power company official said.

"We aim to have 2,000 MW by 2015 under construction or operation.
Each mega watt in hydropower costs us anywhere between
Rs five to eight crore, so we will invest Rs 15,000 crore over
the next five to eight years," Tata Power Company, Executive Director,
Finance, S Ramakrishnan, told reporters here today.

Each project would be developed through a special purpose
vehicle (SPV) and the two partners would have equal say in
decision-making and execution of projects.

Tata Power and SN Power would equally inject Rs 4,500 crore
through equity as well as third party funding if a local company
or government is roped in.

The SPV would borrow the rest from international lenders like
International Finance Corporation (IFC) and the Asian Development Bank (ADB).

"We would be able to raise financing through international lenders,
which would help enhance the status of the project," SN Power,
President and Chief Executive Officer, Oistein Andresen, said.

Ramakrishnan, however, said the fund-raising would not begin
before the next one year.

The partners are also considering co-development of the
Tamakoshi 3 project in Nepal to which SN power holds licence rights.

"The Tamakoshi 3 project is a 600 MW project.
The feasibility is being looked at but it will take time to develop,"
TPC's Executive Director, Strategy and Business Development,
Banmali Agrawala, said.

Besides, Tata Power and SN Power will also establish a jointly-
owned services company in India, which will provide each project
with world-class technical and managerial expertise.

The SPV may sell the electricity on a merchant basis or by signing
power purchase agreements (PPA).

Tata Power is the country's largest private power producer with
a total installed capacity of 2,900 MW. It has 477 MW worth of
hydro power projects in Maharashtra's Western Ghats apart from
having a presence in Bhutan through its 114 MW
Dagachhu Hydro Power Project.

Norway-based SN Power is primarily a renewable energy company
and has about 950 MW of total generation capacity.

In India, the company is present through its investment in Malana
Power Company, which owns an 86 MW plant, the 192 Allain Duhangan
hydropower project under construction and a 200 MW greenfield
project at Bara Bangahal.

RBI may ask banks to hold securitised debt for 6 mths

MUMBAI: The Reserve Bank of India (RBI) may ask banks to hold
securitised debt for six to seven months on their books before selling
them to other market players, said investment bankers
originating such instruments.

In securitisation, an originator bank repackages loans in the form of
marketable securities.

These marketable securities are in the form of pass through
certificates (PTCs), these are like bonds, issued by
special purpose vehicle(SPV) holding the loan.

The RBI’s proposed move is in keeping with action taken by regulators
across the world to ensure that originators of securitised instruments
continue to have what is referred to as ‘some skin in the game’.
For instance, regulators in both the EU and the US now insist that the
originator retain a minimum of 5% of issued securities on his own book,
before sale. This they believe will lead to “ensuring material interest
in the performance of the proposed investments”.

Post the credit crisis, the US Department of Treasury now mandates that
the originators should have fees or incentives based on actual performance
of the pool. In Europe, the banks have also been barred from exposing more
than 25% of its own funds to a client or group of clients.

The seasoning or holding period being considered by
RBI is mainly for securities made by splicing
loans given to a single entity.

Such single-entity loans forms 60-70% of India’s total
securitisation market, pooling of multiple
loans making up the rest. Bankers say securities
made from a pool of multiple loans are anyway
sold in tranches, so seasoning in inherent.

RBI had in the past said it is looking at introducing a
minimum lock in period for originators.

Japan to offer loan worth Rs. 130 crore

By Vaibhav Aggarwal



Japanese government has promised a loan worth Rs. 130 crore
for the Phase 1 freight corridor project to the government owned
Dedicated Freight Corridor Corp of India (DFCCIL). The loan would
help in building the western arm of the corridor.

DFCCIL is a Special Purpose Vehicle (SPV) formed under the
administrative control of Railway Ministry for planning & development,
mobilization of financial resources and construction, maintenance and
operation of the Dedicated Freight Corridors. It was incorporated in
October 2006 under Indian Companies Act 1956.

Phase I of the freight corridor project, a part of the 1,484 km
Western Corridor connects Jawaharlal Nehru Port in Mumbai
and Tughlakabad in Delhi. It is a 920 km stretch.

The Indian government seeks funds worth Rs 17,700 crore from
Japanese Overseas Development Assistance at an interest rate of 0.2%.
The Rs 130 crore engineering service loan is a part of the funding.

A DFCCIL official said, "Engineering service means preparing the
project for contracting. This entails carrying out socio-economic impact,
setting up of design parameters, preparing the bidding documents."

The western corridor is half of a marquee infrastructure project first started
in 2005 by the first UPA government. It consists of two lines being constructed
by the railways, one to transport goods, it will connect India's largest port
in Mumbai to New Delhi through the western corridor (1,483km) and the other
to connect Dankuni in West Bengal with Ludhiana in Punjab through the eastern
freight corridor (1,806km).

State to set up Knowledge City

Bhopal: A Knowledge City would be established in Ujjain district under Delhi-Mumbai Industrial Corridor. It may be mentioned here that Delhi-Mumbai Industrial Corridor (DMIC) is an ambitious project of the Central government. Four investment regions are proposed to be developed under its jurisdiction in Madhya Pradesh. Of these, under Pithampur-Dhar-Mhow investment regions a Knowledge City would be set up in the form of Early Bird Project. The Minister for Commerce, Industries and Employment Kailash Vijaywargiya informed that the construction of the Knowledge City would start soon. The state government has cleared the proposal for this. The Knowledge City would have educational institutions of all manners besides, residential, commercial and social infrastructure. Educational institutions of seven subject faculties are proposed to be set up in the Knowledge City. These include expertise based engineering academy hub, management studies, medical education and a three hundred-bed hospital, bio-science/agriculture studies, design, planning and environmental studies, vocational and skill development centre and other general education institutions. In he first phase the Knowledge City would be developed over 419.92 hectare at village Narvar, about 16 km from Ujjain on Ujjain-Dewas road. The Knowledge City would lead to spin-off development in and around the area. Besides, the establishment of the DMIC project would accelerate industrialization and augment employment opportunities. This will also lead to infrastructure development for centres for excellence in education. The number of skilled labourers would also increase. As per the report presented by the consultant of the Knowledge City, educational facilities in different subjects for proposed educational institutions for about seven thousand students would be provided by year 2016. Separate Company The Knowledge City in Ujjain district would be set up through special purpose vehicle. This company would be jointly formed by Madhya Pradesh Trade and Investment Facilitation Corporation (TRIFAC) and Audyogik Kendra Vikas Nigam. (AKVN). The TRIFAC would have 51 percent share and the AKVN, Ujjain 49 per cent. At present the authorized capital of the SPV is Rs five crore and paid-up capital would be Rs one crore. In future any institution sponsored by the central or state government, Delhi-Mumbai Industrial Corridor Development Corporation or IAL and FS/ Infrastructure Development Corporation can be included in the SPV as per requirement. The primary responsibility of the SPV would be to cater to basic requirements including land, water, electricity, approach road and roads. After this, the Knowledge City would be developed under PPP mode.

Infra cos listing SPVs to derisk business

G Seetharaman

Mumbai: More and more infrastructure companies seem
to be looking to list their hived-off special purpose vehicles
(SPVs).An SPV is entity formed to execute a development project.

Hyderabad-based Madhucon Projects and IVRCL Infrastructure
& Projects recently said they are in the process of bringing t
heir SPVs under single holding companies and listing them.



Parvesh Minocha, managing director, transportation division,
Feedback Ventures, an infrastructure consultancy, said all
firms will eventually list their development business division.
"It makes sense because the risk-reward profile,
cash flows and pre-qualification criteria are different for
both the businesses," said Minocha.

The development business of infrastructure companies is
relatively recent. Earlier, companies acted as mere
construction contractors. But in the last decade or so,
the opportunities in infrastructure development have
grown so much that firms now not only construct a
project but also run (develop) it for a specified period.
Thus, there is a need to separate the contracting and development businesses.

"Listing is needed to bring in better corporate behaviour also," said Minocha.
Infra cos listing SPVs to derisk business K Venkatesh,
executive vice-president, development projects business,
Larsen & Toubro, said the need to de-risk the construction
business made them hive the company's development
business off into a separate entity.

L&T formed L&T-IDPL (Infrastructure Development
Projects) nearly a decade back and then sold 22% stake
in the firm to JP Morgan and India Development Fund.
L&T-IDPL currently has 35 SPVs covering sectors like
bnroads, airports and real estate.

Similarly, Gayatri Projects transferred the investment in its five
road SPVs to Gayatri Infra Ventures and offloaded a 30% stake
in the entity to Australia's AMP Capital Investors.

T V Sandeep Reddy, MD Gayatri Projects, said the venture
needs to grow to a desired size before it can be listed.
"But out ultimate aim is to list it to provide an exit route
to AMP Capital," he said. Even Venkatesh believes listing
is one of the exit options for investors though there is nothing
on the cards immediately.

DNA on September 10 reported that Madhucon plans to
yoke together its SPVs, which include four highway
projects, a power project and a coal mine, before listing
the company. IVRCL, on the other hand, will gather three
toll roads, a sewerage treatment plant and a desalination
plant under one entity for listing. Both the companies cited
the need for better valuation of the SPVs as the reason behind their listing.

Gammon India listed its SPV, Gammon Infrastructure Projects, in April 2008.
Parvez Umrigar, managing director, Gammon Infra, said
listing of SPVs is sensible to the extent that there are
investors who want to invest in your development business
and not the contracting business. "But you need a critical
mass to do so. You can't do it with one or two SPVs," he added.

S Ramnath, senior vice-president, Shriram EPC, said
it would make sense to list SPVs with good returns.
"Whether the listing will work or not will depend entirely
on the nature of the project," he said. Shriram EPC's
subsidiary Orient Green Power has around 20 SPVs
that generate power through renewable energy sources
like wind and biomass.
Some industry watchers believe a good mix of businesses
is essential in listing such an entity so that investors can
minimise risks. Minocha said there might be investors betting
on an individual sectors like roads or power.

To target such investors, GMR Infrastructure plans to list its
holding companies in the energy, airport and road verticals
separately. Patel Engineering also proposes to list its power arm.

IDFC Project Equity, IDFC Pick Up 20% In GMR's Orissa Project

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While IIF will hold 15% in the SPV,

IDFC will pick up 5%.

IDFC and IDFC Project Equity--which manages
the India Infrastructure Fund (IIF)-- have picked
up 20% stake in GMR Kamalanga Energy Ltd,
an SPV under GMR Group’s energy holding company.

While IIF will hold 15% in the SPV, IDFC
will pick up 5%. GMR’s Kamalanga project
—a 1,050 MW captive thermal power plant in
Dhenkanal district of Orissa—is estimated
to cost Rs 4,540 crores ($953 million).

According to an earlier filing with the BSE,
the company said that the project will have
an equity component of Rs 1,135 crore,
of which 20% or Rs 227 crore will be funded by
IDFC. This works out to be an investment of
around Rs 170 crore from IIF into the project.
However, Aditya Aggarwal, investment manager
, IIF, says, "this might not be true for
transactions which happen at a premium."

The project by GMR Energy, a subsidiary of
GMR Infrastructure, has also made a loan
agreement with a consortium of 13 banks,
led by IDFC, for Rs 3,405 crore or $715 million.

The project achieved financial closure in
May 2009 and has commenced construction
with commissioning being scheduled in August 2012.

Aggarwal, who led the deal, from IIF said,
“we continue to be selectively bullish on opportunities
in the Indian power sector.”

The two central themes for IIF's investment
this year would be power generation and transportation
which includes roads highways. He said, the investment
pipeline looks healthy to him and that they would invest
about 30-40% of the fund on the power generation side,
20% on transportation and the remaining 20%
across urban infrastructure.

IIF's strategy is a little different from a conventional
PE player in that it provides "patient capital for about
10-15 years." Aggarwal agrees that deals are taking
longer to close and, with a run up in the public equities,
the valuations are getting on the higher side as well.

IDFC Project Equity, which raised a record $900 million
for project equity investments in the Indian infrastructure
sector, has earlier invested Rs 350 crore in
Essar Power Ltd and $50 million in two special purpose vehicles (SPVs)
floated by Nashik-based Ashoka Buildcon Ltd among its disclosed portfolio.

Dubious firm takes Mauritius route to invest in India

Tax haven funds: Govt shuts one door, opens another

J Gopikrishnan


A little over a year after it clamped down on flow of money
into the country from tax havens abroad, the UPA
Government has once again opened the country’s doors to ‘dubious’ funds.

The Cabinet Committee on Economic Affairs (CCEA),
in its last meeting on October 1, cleared a twice-rejected
proposal of the Foreign Investment Promotion Board (FIPB)
for bringing in $135 million (Rs 650 crore) from Mauritius to
a Bangalore-based firm.

The application submitted to FIPB by Forum Synergies (India)
PE Fund Managers Private Ltd to receive the “contribution”
from the Mauritius-based India Knowledge-Manufac-turing
Company was rejected twice after objections by intelligence
agencies. According to sources, the agencies had raised doubts
on the ownership pattern and fund sources of the Mauritian firm.

The revenue department too had reservations that the proposal
may involve an alleged “treaty shopping”.
‘Treaty shopping’ refers to taking advantage
of the double taxation avoidance agreement by
routing an investment through Mauritius.

The FIPB had first rejected the proposal on August 8, 2008,
at its meeting chaired by then Finance Minister P Chidambaram.

The CCEA Press release on the latest meeting cleverly sidesteps
the funds’ Mauritian origin. “The CCEA approved the proposal
of Forum Synergies (India) PE Fund Managers Pvt Ltd to accept
contribution up to $135 million from India Knowledge-Manufacturing
Company under the foreign direct investment route and to
issue Class B units and Class C units of Forum Synergies
India Trust to the Knowledge-Manufacturing Company,” the release said.

After several controversies on fund flow from tax havens
like Mauritius, Cayman Islands, Guernsey Islands and
Cook Islands, the Government had been shelving proposals
for investment from these countries.

Samir Inamdar, Sudhir Kant and Prasant Goyal head the fund
acceptor firm, Forum Synergies.

The company also has an office in the US.

But hardly any details of the Mauritian firm are
available in public domain.

Despite an extensive search, one could not find any
trace of the ‘India Knowledge-Manufacturing Company’.

In May last year, the CCEA had cleared Agam SPV Six Ltd,
a firm in Cayman Islands, for investing Rs 1,300 crore
in airport development in India.

After The Pioneer’s expose on irregularities of the approval,
FIPB ordered an inquiry and the project was later shelved.

Norms for highway projects pact changed

Mihir Mishra

The threshold limit in the conflict of interest clause in the model
concession agreement (MCA) for highway projects has been increased
from 5 per cent to 25 per cent, which was recommended by
the B K Chaturvedi Committee, set up to find ways to expedite
various road projects in the country.


This will allow any two special purpose vehicles (SPVs) with a common
partner having up to 25 per cent stake for bidding for the same project.

Earlier, any two SPVs in which any developer had more than 5 per cent
shareholding each were barred from bidding for the same project.
It was increased to 5 per cent in July this year from the earlier 1 per cent.

Among other recommendations which have been accepted are the
introduction of an ‘exit clause’, removal of termination clause,
no forfeiting of security money deposited by the bidders
if they are not present at the time of bid opening, and
constituting an empowered group of ministers to clear stalled projects.

The exit clause allows the lead partner in an SPV to exit by selling its
stake after the construction of the project is over.

Earlier, it was mandated to stay till the completion
of the concession period (ranging from 20 to 30 years).

The ‘termination clause’ allows NHAI to take back tolling
rights from a concessionaire anytime before the concession
period is over, if the concessionaire has recovered its investment on the project.

However, the Cabinet Committee on Infrastructure (CCI) has
sent back the recommendations on finances to the Planning Commission.

“The CCI did not accept the committee recommendations on the financing side.
All such recommendations have been sent back to the Planning Commission,”
said a source in the ministry, who did not wish to be named.

The committee’s recommendation on financing included providing sovereign
guarantees on loans that the National Highways Authority of India raises from the market.

Headed by Planning Commission member B K Chaturvedi, the committee
also comprises Road Secretary Brahm Dutt and Finance Secretary Ashok Chawla.

The committee will also begin working on the second part of the report.
This will deal with a new dispute resolution mechanism, providing financing
to road builders and making changes in the company law
to make the special purpose vehicles more powerful.