Flush with funds, state-run power equipment manufacturer Bharat Heavy Electricals (Bhel) is entering the financing business in a big way. Keen to transform itself into a provider of total solutions to generation projects, Bhel has decided to float a non-banking finance company (NBFC) along with a strategic partner to finance power projects.
?It (the proposed NBFC) will act as our investment arm. Bhel will pick up a minority stake in the proposed NBFC and get other strategic investors on board,? Bhel chairman BP Rao told FE. ?It will help improve our business prospects. Besides, it will also allow us to maximise returns on our cash reserves,? Rao said.
Bhel has started the process to select a consultant which could undertake a feasibility study and advise it on setting up the NBFC.
Bhel plans to leverage the funding support to attract potential customers for its equipment. At the same time, it also wants to optimise returns on its cash reserves of Rs 10,000 crore, mostly parked in low-yielding government securities.
While the proposed NBFC would be a separate business under the joint venture route, the company would continue its focus on power equipment manufacturing, which is its main business, Rao said. The plan to set up the NBFC is part of the company’s broader strategy to generate demand for its power equipment.
The company has picked up minority stakes in several state power projects to generate demand for its supercritical power equipment in a bid to indigenise this newly-inducted technology and bring down production costs.
?This is part of our business strategy to create demand for our 800-mw supercritical power equipment. It also helps state generation companies which are facing resource crunch for capacity addition,? Rao said. ?We will remain invested in a power project for five-six years,? Rao added.
The company is also keen to pick up equity in solar power projects planned by public sector oil companies like IOC and HPCL as a strategic investor,? Bhel chief said.
The government has envisaged an aggregated capacity addition of 178 giga watt (GW) under its 11 th and 12 th plan programme. That entails funding requirement of $600 billion.
Meanwhile, the share of private sector is growing fast in power capacity addition. Private players contributed as much as 45% toward capacity addition in 2009-10.
The government is banking on the private sector to contribute more than 60% of the 100 GW capacity addition envisaged during the Twelfth Plan from 2012 to 2017.
Power project developers are facing severe funds crunch as traditional sources such as the stock market and external commercial borrowings have dried up because of the economic downturn. Meanwhile, domestic banks are constrained by RBI’s prudential norms in stepping up funding support to private power projects. This is the reason more and more private players are diluting equity to raise resources for financing their projects. This has created a lucrative business opportunities for equity investors.