India: GVK Energy raises $77.6m from Deutsche Bank for power project

 GVK Energy Ltd has closed funding for its 540 MW coal-fired power project in Punjab, having raised Rs500 crore from Deutsche Bank in priority funding, according to two people directly aware of the development.

The funds raised will be used to make the plant—run by GVK Power (Goindwal Sahib) Ltd (GPGSL)—operational, a spokesperson for GVK said, without disclosing more details of the transaction that was concluded last month.

Priority funding involves extending credit to a company on the promise that the lender will be given higher priority during the payout phase, once a turnround is effected or the company is liquidated.

The transaction assumes significance in the backdrop of growing investor interest in the distressed assets segment, in which existing lenders typically cede charge on the assets in favour of a new lender, who has the first right on cash flows. A Deutsche Bank spokesperson declined to comment. Incorporated in 1998, GPGSL is a unit of GVK Energy, which in turn, is the subsidiary of GVK Power and Infrastructure Ltd (GVKPIL).

While GPGSL has signed power purchase agreements (PPA) with Punjab State Power Corp. Ltd for 25 years, it has not been able to start operations due to last-mile funding gaps.

The project’s two units were commissioned in April last year, after a delay of two years. Also, the company’s plans to procure coal from the captive mine in Tokisud block in Jharkhand stalled following a Supreme Court decision to cancel allocation of coal mines. The project has faced significant cost escalation for factors ranging from additional compensation paid for land acquisition, change in the scope of the project and design changes among others, resulting in project cost revision from Rs3,200 crore to Rs4,573 crore, resulting in cost overrun to the tune of Rs1,373 crore.

Many lenders and foreign funds are looking at priority debt funding as a growth area in the distressed deals segment, as the average returns are higher. “Several projects that are classified as NPAs (non-performing assets) are in need of last-mile funding and this could help them turnaround,” said one of the two unidentified people cited above, a managing director of a large non-banking financial company.

“Banks are now more willing than before to allow a new investor to come in such situations,” the person said. Mint had reported in March that at least two asset reconstruction companies have written to the Reserve Bank of India, seeking permission to allow priority funding for cases under the insolvency and bankruptcy procedures.

GVK Group, which has a presence in energy, resources, airports, transportation, hospitality and life sciences, has a debt of close to Rs32,000 crore. Earlier this month the company sold its residual stake of 10% worth Rs1,290 crore in Bangalore International Airport Ltd (BIAL) to Canadian billionaire Prem Watsa’s Fairfax India Holdings Corp.

The company has recently won the right to build Mumbai’s second airport in Navi Mumbai, which will be constructed at an estimated cost of Rs16,000 crore.


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Power and Energy