Damodar Valley Corporation (DVC), the second largest thermal power generator after NTPC in the central sector, will split into four companies as part of its restructuring plan. The splitting will be in line with the provision on unbundling of state electricity boards, which mandates formation of separate generation, distribution and transmission companies.
The Kolkata-headquartered company is working on an ambitious plan to almost double its installed capacity to 9,390 MW by FY14, from the current generation capacity of 4,857 MW.
DVC chairman RN Sen told FE there will be three separate generation, transmission and distribution companies under the umbrella of the holding company DVC.
While the three companies will be separate profit centres, the holding company will be an expenditure centre, focussed on areas like flood control, dam and irrigation management, pissiculture and other social uplift programmes.
The restructuring will pave the way for these profit centres to raise capital through public issues. Deloitte India has been engaged as a consultant to advise DVC on the proposed restructuring and it would shortly submit its report, which is to be placed before the board on October 13, Sen said.
Earlier the power ministry mulled that all the new DVC projects be hived off. The company added around 2,457 MW in the last four years. DVC, a three-way venture of the central government and the states of West Bengal and Jharkhand, was formed by a special Act of Parliament in 1948 to foster integrated development of the Damodar valley region, spread across West Bengal and Jharkhand (then part of Bihar). The government provided a total paid up equity of R463 crore to the company, last infused in 1969, and thereafter left it to manage its finances through borrowing and internal accruals. Sen said though the promoter states were supposed to provide equity towards the capital expenditure plan, the company had to entirely depend on borrowings to provide equity as well to the projects.
TK Gupta, DVC?s director finance, said of the R46,000 crore capex plan, R29,000 crore has already been spent. The total funding has to be done with a debt-equity ratio of 70:30 and for the equity the company had to dip into its internal accruals. This despite huge dues from Jharkhand hitting DVC?s cash flow.
The company had to look for debt to fund equity as well as source working capital, Sen said. Gupta said while loans for project funding ideally should not have exceeded R32,000 crore, the figure would go far beyond. ?Debt will account for 80% of the total project funding. This will downgrade DVC?s credit rating,? Gupta said. DVC is already saddled with a R2,4000 crore project funding loan and R2,200 crore working capital loan. The company borrowed money against central guarantees.
Restructuring is expected to relieve DVC of debts as balance sheets will have to be cleaned before the company is unbundled. All the new companies floated will have to be debt-free, an official said. The Centre is expected to provide funds for restructuring.
Although Sen declined to comment whether the states will remain as partners to the new companies, he said DVC?s irrigation management was at present under the control of the states and they provided a part of the capex for it. The capex for irrigation and flood control was R40 crore in FY12.
DVC?s revenue grew 30% year-on-year to R7,523 crore, while operational profit grew 14% to R800 crore in FY12. The company has not disclosed its net profit. For FY13 the company has projected a 118% revenue growth y-o-y to R16,446 crore and profit after tax in excess of R2,000 crore.