With cost rising 43% to R4,573 cr in 2 years, debt now 74%
Project delays, cost escalations and defaults in loan interest payments have forced the GVK Group to seek additional financial assistance from bankers for its 540-MW Goindwal Sahib Power project, documents reviewed by FE reveal. Three bankers close to the development confirmed to FE, additional financing was being discussed at the joint lenders forum (JLF).
A loan document with United Bank of India dated March 2015 notes that due to cost overruns, GVK has not been able to service the interest on term loans. The bank has agreed to lend an additional R36.82 crore. “The Borrower has made similar requests to other lenders in the consortium,” the document states.
A separate loan document of UCO Bank, dated September 30, 2014, says that it is initially disbursing R8.64 crore to the company; an amount “deemed to be for servicing of the unpaid interest on the existing term loan of R150 crore.”
Both banks mention a moratorium of six months for repaying the loan. Other lenders in the consortium include Punjab and Sind Bank, Bank of India, Union Bank of India, Indian Bank and IDBI Bank.
The thermal power project is being set up by GVK Power (Goindwal Sahib), a subsidiary of the listed GVK Power and Infra, in Punjab’s Tarn Taran district. At the end of March 2015, the project cost had escalated to Rs 4,573 crore from Rs 3,200 crore in FY13. As such, the debt-equity ratio will now be 74:26, with the loan component at Rs 3,375 crore and equity component at Rs 1,198 crore. Both units will be ready for commissioning in November this year; the earlier date for commercial operations was June 2014.
At the end of March 2014, GVK Power (Goindwal Sahib) had drawn down loans of Rs 2,369.06 crore while shareholders had infused equity of Rs 930.36 crore, the annual report for FY14 shows. GVK did not respond to an email questionnaire on the matter. The balance sheet also notes that in FY14, the project cost escalated from Rs 3,200 crore, to Rs 4,000 crore, due to poor soil conditions at the site, changes in rail connectivity and an increase in the prices of cement and steel.
“The said increase in the project cost of your company has been funded in a debt-equity ratio of 65:35. As the units have not been commissioned on time, your company has filed an application with Punjab State Electricity Regulatory Commission (PSERC) requesting for extension of time,” the balance sheet noted.
A separate document states that project costs further escalated to Rs 4,573 crore in FY15; the project has a power purchase agreement (PPA) with Punjab State Power Corporation (PSPCL) for 25 years.
A JPMorgan report notes that GVK lost the bid for the Tokisud coal block (in Jharkhand), previously allocated to its Goindwal Sahib project (540 MW) in Punjab, to Essar Power which bid at Rs 1,100/tonne. GVK also lost the bid for the Amelia (North) block to Jaiprakash Power Venture (JPVL) which bid at Rs712/tonne. Tariffs for Goindwal Sahib are regulated, allowing for a pass through of fuel costs. It has a memorandum of understanding for 1.2 MMT of coal for six months and 0.5 MMT with Western Coalfields (WCL).
JP Morgan believes that after servicing the interest at the project and corporate levels, the GVK Group will be left running a tight ship over next the two years with a limited scope to pursue new projects or share equity for group needs (say for the Australia mining venture). “Getting rid of Rs 39 billion (Rs 3,900 crore) of corporate level debt (approximately 16% of the total debt outstanding as of September 2014) is critical to shore up profitability and arrest balance sheet deterioration,” analysts noted.
GVK Power & Infrastructure posted a net loss Rs 835 crore in the year to March 2015, compared to a loss of Rs 369 crore in the year to March 2014. Total income increased from Rs 2,821 crore in FY14 to Rs 3,050 crore in FY15, Bloomberg data showed. The firm’s net debt rose 1%to Rs 22,463 crore with finance costs rising 55% to Rs 1,398 crore. The firm along with its subsidiaries has interests in the power, transportation, airports, and oil & gas sectors.