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C. Shivkumar

Bangalore, Oct. 10 Public sector power financier Rural Electrification Corporation (REC) has deferred its $ 1-billion external commercial borrowing (ECB) plans. It has, instead, switched to the domestic financial markets. REC officials said they had originally planned to raise the funds for meeting the lending commitments for this financial year.

The officials said, “The ECB proposal is on hold for the moment.” They said that ECB plan was grounded in view of the Reserve Bank of India’s fiat to financial institutions and banks against raising ECBs for funding rupee credit requirements.

The RBI had tightened the ECB guidelines in August this year to contain the liquidity surge in the domestic banking system. However, the RBI guidelines applied only to fresh ECBs. Therefore financiers such as REC could still draw on their existing commitments, the officials said.

REC already has loan agreements with Japan Bank for International Cooperation, KFW of German and a syndicated loan facility with Standard Chartered (StanChart) Bank/DEPFA\ (Deutsche Pfandbriefbank AG) Investment Bank Ltd. The loan arrangements with JBIC and StanChart/DEPFA are yen-denominated, for ¥ 20,629 million and ¥ 23570 million respectively. The loan arrangement with KFW is euro-denominated.REC, till the end of March this year, had drawn only ¥8,721 million. Both the JBIC and KFW loans are long-term, with repayment tenures in excess 10 years. The StanChart/DEPFA loan is a five-year loan.

The ECBs were end-user specific and for augmenting lending requirements to the power sector. The commitments included support for upgradation of transmission/distribution sector in the various States and for creation of new generation capacities both in public and private sectors. The lending commitments to the private sector generation included the l015 MW Mangalore Power promoted by Nagarjuna Power Corporation and the 4000 MW ultra mega power projects that are expected to go into financial closure shortly. REC, the officials explained, was in a position to tap the domestic markets.

In fact, REC had raised 10 year funds amounting to Rs 1,500 crore (Rs 500 crore plus green shoe option of Rs 1,000 crore) at 9.85 per cent. This was the first market foray this financial year. But more such borrowings would be carried out in the domestic market, they added.

Besides REC intended to pursue the ECB route of funds also, officials added. It had sought the RBI’s and the Ministry of Power’s approval for the purpose. The pursuit of ECBs was in view of the cost differential. Institutions such as REC are in a position to raise ECBs at less than 100 basis points over the London Interbank offered rate (LIBOR). Six month LIBOR is currently about 5.2 per cent. Inclusive for the current forward premia and swapping charges, the effective costs are unlikely to be more than 7.5 per cent, making ECBs at least 2 per cent cheaper than funds from domestic sources.

More Stories on : Overseas Borrowings | Power | Financial Institutions

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REC defers ECB plan, to tap domestic market

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