Indian power developers are seeking financing from China to fuel expansion as rupee interest rates soar and local banks say they can’t keep up with demand to fund about $45 billion of equipment orders from China needed by 2017.
Lanco Infratech Ltd., based in Hyderabad, Adani Power Ltd., SRM Energy Ltd. and Moser Baer Projects Pvt. have said they’re talking to China’s export banks for loans, after billionaire Anil Ambani’s Reliance Power Ltd. borrowed $1.1 billion from China Development Bank Corp. in December.
Utilities are turning to China as they buy boilers and turbines to help meet India’s 100,000 megawatt capacity-addition target in the five years ending March 2017. India’s National Stock Exchange three-month interbank offered rate of 9.19 percent compares with 4.357 percent for Shanghai’s interbank offered rate, Shibor. Average yields for top-rated five-year Indian corporate bonds have risen to 9.13 percent from 8.94 percent on Dec. 31, according to the Fixed Income Money Market and Derivatives Association of India, or FIMMDA.
“Every power company buying Chinese equipment is looking into borrowing from them as well,” L.R. Shrivastav, chief executive officer of New Delhi-based Moser Baer Power, said by telephone yesterday. “The equipment companies are facilitating our relationship with banks and if they offer a lower lending rate, we will take it, otherwise we will get a loan at home.”
India needs more power stations to reduce blackouts and drive its economy, which Prime Minister Manmohan Singh aims to expand by 10 percent a year. India will miss capacity targets through 2012 because there aren’t enough established equipment makers, Power Minister Sushil Kumar Shinde told reporters in New Delhi on Dec. 19.
‘Can’t Fund Everything’
SBI Capital Markets Ltd., a unit of the nation’s largest lender, the State Bank of India, lent $10 billion to power projects in 2010 and loan rates to private utilities ranged from 8 to 11 percent, according to Senior Vice President Rajat Misra.
“If foreign banks came, it would be a relief to Indian banks which are trying to fund infrastructure projects,” Misra said in an interview in New Delhi yesterday. “We can’t fund everything.”
Reliance Power of Mumbai, which has ordered $10 billion of coal-fired generators from Shanghai Electric Group Co. for Indian plants, took the loan from China Development Bank after signing a $12 billion financing agreement with Chinese lenders.
China Development Bank has lent more than $120 billion for the nation’s projects abroad, and while terms aren’t disclosed for its loans, it sold five-year bonds at a 3.31 percent coupon Jan. 14, China clearinghouse data show.
Such loans may boost India’s capacity and help Chinese power-equipment makers, which are hunting contracts abroad to offset slowing orders at home, according to Shubhranshu Patnaik, a senior director at Deloitte & Touche LLP in New Delhi.
Bonds, Rupee
Elsewhere in Indian markets, government bonds gained for the second day on speculation investors stepped up purchases with yields at eight-month highs. The yield on the benchmark 7.80 percent bond due May 2020 slipped 1 basis point yesterday to 8.18 percent, according to the central bank’s trading system.
The rupee declined 0.1 percent to 45.46 per dollar after earlier climbing to its highest level this week. The currency has lost 1.7 percent this month, the worst performer among the most-traded Asian currencies.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, has risen 24 basis points, or 0.24 percentage point, this year to 184, according to CMA prices.
Syndicated Loans
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Indian syndicated loans almost doubled last year to $88.4 billion and reached $4 billion so far this month, data compiled by Bloomberg show.
Indian utilities have agreed to orders and memorandums of understanding with Chinese power companies for a total of about $45 billion of equipment, according to estimates by Deloitte & Touche’s Patnaik.
Shanghai Electric Group, Dongfang Electric Corp. and Harbin Power Equipment Co. have made agreements with private Indian utilities and are pointing them to Chinese banks to fund the agreements, said Shrivastav.
Chinese companies signed $16 billion of deals with Indian businesses during Premier Wen Jiabao’s visit to India last month. Ahmedabad-based Adani Power placed orders for $3.6 billion of equipment, while Mumbai-based SRM Energy gave $1.4 billion of contracts during the visit.
China’s Experience
China’s energy reach is expanding elsewhere. Venezuela will use $6 billion from a joint development fund it set up with China to invest in electricity generation projects, Finance Minister Jorge Giordani said Jan. 18.
New Delhi-based Indiabulls Power Ltd. and Bangalore-based GMR Infrastructure Ltd. will buy only Indian technology. Abhijeet Projects Ltd., which placed a 6,600 megawatt order with Dongfang, will take on debt with Indian banks.
Many private companies have been lured by the experience and efficiency of China’s power companies, Sanford C. Bernstein & Co. senior research analyst in Hong Kong, Michael Parker, said in an interview on Jan. 4.
In fiscal 2007, China added 100,000 megawatts to its grid through its joint ventures with Siemens AG, Alstom SA and Hitachi Ltd., Martin Prozesky, a London-based analyst at Sanford C. Bernstein said in an interview on Jan. 10.
Those same manufacturers have formed joint ventures with Indian equipment companies.
“The Indian power sector pie is so big,” Satnam Singh, chairman of New Delhi-based Power Finance Corp., the state-run lender to Indian utilities, said Jan. 18. “There will be a share for everyone.”
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