Power finance companies may be hurt by new NBFC provision norms…

As per the note published by Bank of America Merrill Lynch, the Reserve Bank of India panel's new recommendations on lending and provisioning rules for non-banking financial companies could hurt power sector finance companies such as Power Finance Corp (PFC), Rural Electrification Corp (REC) as well as others like IDFC, Shriram Transport and Manappuram Finance which currently classify NPLs under 180-day norms.

 
Only Indiabulls Financial Services Ltd and Reliance Capital follow the proposed 90-day norm, the note said. In order to comply with the new rules, PFC and REC could have to provide for on standard assets (~25bps), "which could hurt their earnings in the medium term", the Wall Street bank said in a note.

Shriram could see NPLs more than doubling (to+5.3-5.5 per cent) from present and previous cover come-off (82% now), but they could also be allowed to do so in a phased manner "assuming the worst case, if not in a phased manner, then the impact on FY13 earnings for Shriram could be +3-5 per cent," BofA added.

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Sahara, Korea join hands for power projects…

According to reports, Sahara India Power Corporation Ltd, in association with Korea East-West Power Co Ltd, will be setting up power plants through mega projects in India to generate 6,000 MW.

The CEO of Sahara Power Ashok Bhargava and president & CEO of Korea East-West Power, Gil Gu, recently signed a memorandum of agreement (MoA).

While Sahara Power is the Sahara group’s initial venture into the power sector, Korea East-West Power is an undertaking of the government of Korea. Both have agreed to jointly participate in tariff-based bidding for ultra mega power projects (UMPPs) and other opportunities in India.

Both firms have already tied up to set up a 2x660-MW power plant in Titlagarh, Orissa, with an investment of about Rs8,000 crore.

They claim to have jointly brought to India new and innovative thermal power generation technologies by optimizing the resources in terms of fuel consumption, heat recovery and waste water resources and recycling. Pollution levels are also expected to be lower than current Indian norms.

Gil Gu said, “India is an important country for us as it is one of the emerging powers of the world, and with Sahara Power as our partner we are confident that our projects will serve the energy requirements in further development of India.”

Together with Bhargava he met Union ministers including Sushil Kumar Shinde and Sriprakash Jaiswal, and senior functionaries of the Power Grid Corporation of India, a leading provider of power trading solutions.

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Solar Power can meet 5-7% Power Requirement in India by 2021-22: As per KPMG Report…

A study published by KPMG, a global consulting company has forecast that solar power can meet 5-7% of India’s total power requirements by 2021-22.

In a written reply to a question in Rajya Sabha today, Minister of New and Renewable Energy Dr. Farooq Abdullah said India has good potential for solar power as it receives solar energy equivalent to over 5,000 trillion kWh per year, which is far more than the total energy consumption of the country. He said the daily average solar energy incident varies from 4 – 7 kWh per square meter of the surface area depending upon the location and time of the year. The Minister added that the solar radiation is available at most locations in the country for about 300 days in a year.

Dr. Farooq Abdullah informed that the total installed capacity of grid connected solar power plants as on date is 45.5 MW. He said the Government has launched Jawaharlal Nehru National Solar Mission in January 2010, which aims to set up 20,000 MW grid solar power by 2022 in addition to 2,000 MW of off-grid solar power. He said deployment of solar power is, thereafter, expected to increase rapidly due to declining prices of solar power, indigenization and technology improvements.

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RPower sought shareholders’ approval for raising funds through QIP…

Anil Ambani Group firm Reliance Power has sought the approval of shareholders to raise funds through sale of up to 25 per cent shares to institutional investors for funding projects.

It has also sought the nod for mopping up funds through issuing of securities in international markets, according to the company's annual report for 2010-11.

When contacted, a Reliance Group spokesperson said, "These are merely enabling resolutions that will remain valid till the next AGM, but there are no plans for making any QIP or other offering of securities at this time". Meanwhile, the proposed issue of QIP securities may be made in one or more tranches.

"... the aggregate amount raised by the issue shall not result in the increase of the issued and subscribed equity share capital of the company on the relevant date by more than 25 per cent of the then issued and subscribed equity shares of the company as on the relevant date," the report noted.

 
The proposed sale of securities in international markets would also have a ceiling of 25 per cent of then issued and subscribed equity shares.

Based on today's market capitalisation of Rs 23,422 crore, around 25 per cent stake in the company would be worth over Rs 5,850 crore.

Reliance Power on its own and through its subsidiaries has a planned portfolio of over 35,000 MW generation capacity, including both operational as well as projects under development.

"In order to part finance such a large portfolio of power projects and to enhance its global competitiveness and ability to compete with the peer groups in the domestic and international markets, the company needs to strengthen its financial position and net worth by augmenting its long-term resources," the report said.

In letter to shareholders, Reliance Power Chairman Anil Ambani said the company expects to commission 600-MW Rosa Phase-II project, the 600 MW Butibori project at Nagpur, Maharashtra and one unit of 3,960 MW Sasan Ultra Mega Power Project (UMPP) at Madhya Pradesh, by 2012.

"Besides, we shall commission the open cycle phase of India's largest gas based power project, the 2,400 MW project at Samalkot, in the current financial year and the combined cycle phase by the next year," Ambani wrote.

Reliance Power recorded a profit of Rs 760.44 crore in 2010-11.

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India to receive 200 Mn EURO loan from EU for Renewable Energy development…

India will receive a loan of 200 million euros from the European Union to finance private sector projects for the development of renewable energy resources.

The EU's assistance comes as part of its "strategic partnership" with India and will be made available by the European Investment Bank (EIB) to ICICI Bank, India's largest private bank, in the first-ever cooperation between the two financial institutions.

It is intended to provide long-term financing for investments on a number of electricity generating projects, especially in the areas of solar photovoltaic, biomass and onshore wind power by private companies, thereby making a contribution to India's efforts to reduce greenhouse gas emissions, the EIB said on Monday in a press statement.

The loan is being provided under the EIB's Energy Sustainability and Security of Supply Facility (ESF), a 4.5 billion euro programme designed to reinforce the EIB's goal of promoting renewable energy and energy efficiency in non-EU countries.

This is the first cooperation between the long-term financing institution of the 27-nation EU bloc and India under the ESF programme, the statement said.

The ESF is used when the bank does not need a credit guarantee from the EU because the recipients are investment-grade countries or where appropriate security can be provided.

In addition to the ESF, the EIB has an external lending mandate to implement the EU's lending operations outside the bloc as part of its cooperation with those countries and since 1993, the bank has carried out four successive lending operations for Asia and Latin America.

Under the current mandate, covering the period between 2007 and 2013, the EIB is authorized to lend up to 3.8 billion euros for financing projects that contribute to the avoidance or reduction of greenhouse gas emissions through foreign direct investment or technology and know-how transfer.

The lion's share of the funds, amounting to 2.8 billion euros, are earmarked for Latin America, while the Asian region will receive 1 billion euros.

The EIB's loan for India will "support the EU-India strategic partnership, which provides for cooperation in curbing climate change", the statement said.

The projects eligible for financing will bring economic benefits to the region by enhancing the production of energy from renewable resources, reducing the costs for imported energy, expanding the use of domestic resources and curbing greenhouse gas emissions and other airborne pollutants.

"The EIB will ensure that the projects are economically and financially viable, technically adequate and in compliance with the bank's environmental and social requirements," the statement said.

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Coal linkages: 974 power firms line up for supply…

The coal ministry has received applications for long-term coal linkage from central and state utilities, independent power producers (IPPs) and captive power producers (CPPs) for 974 power projects with a generation capacity of over 5.96 lakh Mw, as on July 31.

Of the 974 applications, 107 are from central and state utilities for capacity addition of 1,22,405 Mw, 434 applications from CPPs for 37,345.79 Mw and 433 from IPPs for a record 4.25,836.5 Mw capacity addition. The installed capacity of these power projects vary from 10 Mw to 5,280 Mw.

A coal ministry official told Spark: “Some of the applications had already been considered in the past by the standing linkage committee (long term) but deferred the decision due to various reasons. These applications will be taken up in due course to provide long-term coal linkage for the upcoming power projects.”

The official said the standing linkage committee (long term) would take up the proposals wherein the applicant had changed the category from CPP to IPP or enhanced or reduced the generation capacity or modified configuration.

According to the official, adequate reserves — coal reserves upto 1,200 metres deep — have been estimated at 277 billion tonnes as on April 1, 2010 and lignite reserves have been estimated at 39.07 billion tonnes as on March 31, 2009. Of the 277 billion tonnes, 110 billion tonnes of coal reserves have already been identified, 130.65 billion tonnes are indicated and 35.6 billion tonnes inferred.

The power ministry official said it had been pursuing with the coal ministry for an early clearances for both short and long-term coal linkages. “The issue has been discussed with the coal ministry on a regular basis. We are quite optimistic that the ministry will clear these applications expeditiously especially when it has projected a capacity addition of 1,00,000 Mw each in the 12th and 13th Five-Year Plans and most of which is expected to come through coal-based power projects.”

According to the official, Coal India Limited (CIL) has assured to supply about 600 million tonnes in 2016-17. However, the actual availability is likely to be 415 million tonnes leading to a shortfall of 185 million tonnes by the end of the 12th Plan.

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Spark’s Update on Suzlon Energy…

Suzlon Energy is turning out to be one interesting turnaround story. After a couple of loss-making years, it appears to be gearing up its businesses, as reflected by its financial performance in 2011 so far. In the March '11 quarter, Suzlon improvised upon its operating margins by more than 500 basis points y-o-y. The June '11 quarter also saw the company post impressive double-digit operating margins.

 
Suzlon registered more than 80% y-o-y growth in revenues in June '11 quarter while its net profit was impressive at 60 crore against a loss of over 900 crore in the June '10 quarter. The raw material cost, as a percentage to sales, also declined by nearly 1000 basis points to 64% in June '11, indicating the cost efficiencies being put in place. It has also succeeded in keeping its wage costs in check, helping it considerably improve its operating margins.

 
Suzlon has maintained its guidance of achieving 24,000-26,000 of sales in FY12, backed by its order book of over 29,000 crore.

Its acquisition of

REpower has played a major role in the turnaround.

Nearly 62% of its current order book is from REpower. Suzlon is now in the final stages of acquiring the remaining 5% stake REpower from minority shareholders for approximately 398 crore.

Even as a turnaround in visible, Suzlon's stock currently trades around 34-36 on the bourses, i.e. its near 52-week low level. Over the past one-year, this counter has returned a negative 27% against the Sensex's negative 12%.

 
Apart from its weak financials in the past, a major concern that is holding back investors is Suzlon's huge

debt which includes the foreign currency convertible bonds loan due for repayment next fiscal.

The management, however, is optimistic about meeting its loan obligation, intending to fund it through operating cash flows, receipts from the stake sale in Hansen Transmissions and also the expected recovery from one of its large US-based debtor by the second half of this fiscal. It has a cash balance of over 3,000 crore as at the end of March '11 while its total debt stood at over 12,500 crore

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GVK Power & Infra may raise debt to fund Australia’s Hancock buy…

As flagged by Spark earlier, GVK Power and Infrastructure, which will acquire two coal mines from Australia's Hancock Prospecting for about $2.2 billion, could likely fund the acquisition by raising debt without much strain on key financial parameters as the Hyderabad-based company's leverage is comfortably below industry peers.

The board of GVK is expected to meet soon to take a formal decision on the transaction that has also been approved by its lead banker,

ICICI Bank.

 
The board meet may focus on the route to be adopted to fund the acquisition. According to information available with the Economic Times Intelligence Group, GVK Power's debt:equity ratio - which typically denotes the ability of the company to raise loans - is favorably placed compared to its competitors such as GMR Infrastructure and Lanco Infratech, who have also acquired coal mines in the recent past to feed their power plants.

GVK Power and Infrastructure's current debt-equity ratio is 1.2 which is much lower than GMR's 2.6 and Lanco's 2.7. As on March 31, 2011, GVK's net debt was Rs 5,548 crore, while its equity stood at Rs 4,540 crore. Power companies typically have a large debt-equity ratio due to the high cost of setting up the projects where large loans are contracted.

 
In this industry, the ratio typically goes up to 2.5 to 3. The special purpose vehicle route, where a newly-formed company would take on the debt, is the most preferred option for power companies. Even if the company were to raise debt of about Rs 4,500 crore for the Hancock transaction, the debt equity of GVK Power will still be lower than its peers, at 2.2, according to an analysis by ETIG

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Floating Solar power plant on Narmada branch canal near Sanand…

Earlier this year, Tata power partnered with Sunengy, Australia to build the first floating solar plant in India. The construction of the pilot plant in India is expected to commence in August 2011.

The Punjab government in June this year approved the setting up of a project which will generate solar power by utilizing the space over irrigation canals in the state.

 

According to reports, Sanad is now gearing up to house yet another first-of-its-kind project – a solar power plant to be built on Narmada branch canal passing through the town.

As part of a novel concept mooted by the Gujarat chief minister Narendra Modi, the Gujarat government has decided to install solar power panels on one km stretch of Narmada branch canal near Sanand.

“To be developed on public private partnership (PPP) model, the solar plant on Narmada branch canal would generate one Mw of power, once fully operational,” said a top government official.

Interestingly, the solar project is expected to save 100,000 litres of water a year by reducing evaporation of canal water in that particular stretch of one km. The entire stretch would be covered by solar panels, thereby reducing evaporation of water.

As per the industry estimates, a 1 Mw solar power project roughly requires five acres of land. “Installation of solar panels on river canals would also take care of land issue for solar power project,” the government official added. The state government has already roped in one of the leading companies in solar energy space. SunEdison, a subsidiary of US-based global solar energy player MEMC, will be executing the project near Sanand. “This is for the first time such a project is being developed in India,” said a senior official of SunEdison.

The state government has already cleared the project and a new company is being floated to develop the project. “There are different concepts being developed for solar power generation. Developing a solar power generation facility on the water canals is one of such concepts. But for any such effort, first of all a feasibility study needs to be carried out as it is entirely a different ball-game than the existing projects being developed in India,” says Pranav Mehta, founder chairman of Solar Energy Association.

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Rel Infra, Tata Power gain on tariff hike news…

Delhi power regulator cleared 22% tariff hike w.e.f. September 1. The last tariff hike in Delhi was made in 2009.

Reliance Infrastructure and Tata Power together control nearly 90% of Delhi power market.

Reliance Infrastructure and Tata Power shares gained substantially post announcement.

At 11:53 hrs Reliance Infrastructure was quoting at Rs 432.50, up Rs 15.80, or 3.79%. It touched an intraday high of Rs 437.80 and an intraday low of Rs 425. It was trading with volumes of 120,579 shares

At 11:53 hrs Tata Power Company was quoting at Rs 1,034.25, up Rs 21.80, or 2.15%. It touched an intraday high of Rs 1,043.90 and an intraday low of Rs 1,017. It was trading with volumes of 9,055 shares

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