L&T to Borrow $4.4 Billion for Power Plants; May Buy Coalmines

Jan. 18 (Bloomberg) -- Larsen & Toubro Ltd., India’s biggest engineering company, may borrow as much as $4.4 billion to build a power-generation business over five years to ease shortages in the world’s second-fastest growing major economy.

Larsen’s new utility arm may borrow 80 percent of the 250 billion rupees ($5.5 billion) needed to build 5,000-megawatt of thermal power capacity, Ravi Uppal, Managing Director and Chief Executive Officer, L&T Power, said in a telephone interview from Mumbai on Jan. 15, without disclosing details of the funding plan.

“We want to support India’s power industry,” said the 57- year-old former head of global markets at ABB Ltd., the world’s largest builder of power networks. “Our engineering and construction capability can get going a major power scheme.” The plan “is part of a changing profile of L&T,” he said.

Power generation companies in India plan to almost double capacity in the five years to March 2012. Prime Minister Manmohan Singh’s government has pledged 569.6 billion rupees to build plants and transmission lines to cut expected peak-hour shortages as high as 12.6 percent this year, according to the Central Electricity Authority.

Larsen is also looking to buy coalmines in Indonesia and Australia, apart from fields in India, to fuel the mostly coal- fired capacity, Uppal said without giving details.

Manufacturing Experience

The parent company, which builds power plants on contract is looking to diversify into generation after it acquired the expertise to manufacture large boilers and turbines through a joint venture with Japan’s Mitsubishi Heavy Industries Ltd., Uppal said. The venture at Surat in western India is scheduled to begin producing boilers by April and turbines in June.

“With our joint venture with Mitsubishi we will become a mega manufacturing unit for boilers and turbines,” Uppal said. The unit, which will compete with Korean and Chinese suppliers, can produce 4,000 megawatts a year, he said.

L&T Power plans to use so-called supercritical technology to build its projects to cut sulfur and nitrogen oxide emissions, he said.

Larsen may consider listing its power unit on Indian exchanges to help raise funds in the future, according to Uppal. The parent’s shares have more than doubled since last year compared with a 94 percent rise in India’s benchmark 30-share Sensitive Index.

The company has begun work on a 1,320-megawatt coal-fired plant at Rajapura in the state of Punjab. The company may complete raising loans for the project “very shortly,” Uppal said without giving details.

The project’s first phase of 660 megawatts will begin generation by the end of 2013, he said. The company is scouting for locations to build more projects and will bid to build large power projects capable of producing as much as 4,000 megawatts being auctioned by the Indian government, Uppal said.

The government plans to auction a total of nine ultra mega power projects, each of which can meet the electricity needs of 1 million middle-income Indian homes.