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Balaji C. Mouli

NEW DELHI, May 11

THE National Thermal Power Corporation's consultants, SBI Capital Markets Ltd and ICICI, have recommended forging of joint ventures over a public issue to help fund its capacity addition programme to the extent of Rs 1,500 crore provided the projects are `bankable'.

A bankable project is one where the company is ensured of payment for the power sold to the consumers from the project.

In a presentation made to NTPC officials on May 8, the consultants have said that in case of any equity offering, the company will require to first undertake a capital-restructuring programme involving conversion of existing equity into preference shares to make the issue attractive.

Under this option involving a 10 per cent equity float, up to Rs 1,500 crore can be realised in the domestic market at around Rs 20-25 per share assuming a price-earning ratio of five and an earnings per share of 4-5.

NTPC is a fully owned company of the Government.

When contacted, the NTPC Chairman and Managing Director, Mr C.P. Jain, said, "The consultants have yet to submit their report. Only after that will we be able to take a view on the issue in consultation with the Government."

The option of an increased debt-equity ratio to support capacity addition has been rejected by the consultants outright. They have argued that the minimum acceptable Debt Service Cover Ratio falls below 1.50 during 2011-2014 in case of an 80:20 debt-equity ratio. Currently, NTPC projects are structured on a 70:30 debt-equity ratio.

With regard to the IPO route, the consultants have said that since NTPC has a large equity base, with a projected dividend outflow of Rs 17,500 crore over the next seven years, unless the Government forsakes a portion of its dividend through conversion of a portion of its existing equity in preferential equity earning lesser dividend, the exercise is not entirely worthwhile. This is because the capital will have to be serviced after the IPO.

The consultants have suggested a roadmap where overseas offerings can be explored over a timeframe of 2-3 years.

On the joint ventures, the consultants have said that the JVs are preferable at new sites. In this case, issues such as control and the role of the other investors will require to be worked out.

"Since the primary objective is supplementing internal resources, possibly only the passive financial investors could be considered," the consultants have said. Other issues include the higher cost of funding in this scheme.

The consultants will be shortly making a presentation to the Power Ministry on the options.

The consultants were appointed to examine measures to meet NTPC's Rs 10,000-crore shortfall in resources to meet its additional capacity target. The shortfall is on account of the availability tariff order of the Central Electricity Regulatory Commission, which has pared NTPC's returns and hence significantly reduced its internal revenues to fund capacity addition.

In its final analysis, the consultants have said that the above options are "complex and would lead to only incremental fund availability."

The options individually are aimed at mobilising up to Rs 1,500 crore though the gap is of the order of Rs 13,000 crore in the Tenth Plan period when 10,000 MW of capacity is to be implemented.

Since dividend outflow is of the order of Rs 17,500 crore over the next seven years, deferred payouts or, even better, stopping of dividend payouts can easily bridge the resource gap.

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