The Hindu Business Line : TNPL close to achieving financial closure for expansion plan

Chennai, Aug. 13 Tamil Nadu Newsprint and Papers Ltd is on the verge of achieving financial closure for the Rs 780-crore mill expansion plan and the mini-cement plant, according to sources in the know.

The company plans to borrow Rs 550-600 crore out of the total capital outlay through a combination of foreign currency loan and rupee loans to keep the cost low.

The expansion plan envisages adding a third paper machine with a paper production capacity of 1.55 lakh tonnes (lt) to take its total production capacity to 4 lt a year in printing and writing paper by June 2010.

Equipment supply

It has placed the orders for the paper machine to be supplied by Voith Paper GmbH & Co, Germany, and for additional equipment for backward integration of its pulp line to Metso Paper Sundsvall AB.

TNPL will also set up a 400-tonne-a-day mini-cement plant using the fly ash and waste lime sludge generated at the factory.

TNPL will seek shareholders’ approval to enhance the overall borrowing powers of the board to Rs 1,500 crore in rupee loans and foreign currency loans.

Financial re-engineering

According to its annual report, TNPL has paid off the entire World Bank loan of $45 million in December 2007. The loan was taken to fund TNPL the expansion between 1993 and 1996 when the company’s capacity was doubled to 1.80 lt.

To bring down the cost of funds the company had earlier shifted from the multi currency World Bank loan to a US dollar denominated FCNR(B) loan and halved the repayment period to five years. This resulted in a saving of over Rs 39.95 crore as December 2007 when the last payment of the entire loan was made. The pulp line expansion plan that was completed in May last at a cost of Rs 565 crore was also based on a fixed rate of interest for Rupee loan and Libor-based foreign currency loan to keep the interest and financial charges down.

Averagely leveraged

The weighted average cost of loans outstanding as on March 31, 2008, was 7.65 per cent. Even after the impending borrowing, the cost of the total stock of loans will be below 9 per cent, sources told Business Line. The debt equity is 0.62:1 against 0.84:1 in the previous year. The company plans to keep the debt equity ratio at the peak level below 1:1.