Feb. 26 (Bloomberg) — Lanco Infratech Ltd., India’s
second-biggest non-state power generator, is seeking private-
equity investors to help expand its solar capacity fivefold as a
coal shortage roils its thermal business and payment defaults by
state utilities widen the group’s losses.
Lanco needs funds to meet a plan of adding 500 megawatts
annually in three years, with 350 megawatts to be built for
customers and the rest coming from its own plants, V. Saibaba,
chief executive officer of the New Delhi-based company’s Lanco
Solar unit said in a telephone interview. Government policies to
promote alternative energy sources will make the investment
attractive, he said.
“The political intent in India is very strong,” Saibaba
said, speaking from his office in Gurgaon near New Delhi.
“Constraints like coal availability and fuel import bills will
ensure India will have to focus on renewable energy.”
Lanco is joining Tata Power Co., India’s biggest non-state
utility, which said Feb. 5 that it is scouting for investors and
planning to sell shares at its solar unit as India extends
grants to cut solar project costs and ease curbs on equipment
imports. A plan announced last year by the Lanco group to raise
$750 million selling stake in its conventional power unit to
private-equity funds has stalled amid losses that have surged
nine times in the first three quarters of the financial year.
Losses Widen
Shares of the New Delhi-based company have slumped 86
percent from a record reached on Dec. 28, 2007 to 11.2 rupees.
The slide in the value has eroded the wealth of Chairman L. Madhusudhan Rao, who was a billionaire as late as January last
year, according to data compiled by Bloomberg. The shares fell
1.3 percent at 11:39 a.m. in Mumbai.
“Lanco hasn’t done well when it comes to the power
business,” which suffers from fuel supply problems, said Gaurav Oza, Mumbai-based analyst at GEPL Capital Pvt. “They seem to
have done much worse in managing utilities as compared to their
earlier success in construction.”
Lanco reported an annual loss of 1.1 billion rupees ($21
million) for the group in the year ended March 31, its first
since its shares started trading in November 2006. The combined
loss in the three quarters ended Dec. 31 climbed to 9.9 billion
rupees, according to data compiled by Bloomberg.
State-owned regional electricity distributors, often forced
to sell energy below costs, are unable to pay producers as the
difference between the cost of supply and average tariff has
widened. The utilities had debt of 1.9 trillion rupees as of
March 2011, government estimates show, even as lenders tightened
credit. That has resulted in poor cash flows for Lanco.
Debt Outstanding
The company has 35 billion rupees of receivables, Rohit
Sanghvi, an analyst with Prime Broking Co. in Mumbai, wrote in a
Feb. 15 report. The outstanding amount is more than Lanco’s
market value. Total debt stood at 95.7 billion rupees, of which
the solar unit accounted for 5.5 billion rupees.
Lanco may be counting on interest in solar projects as the
government targets to build 9,000 megawatts of grid-connected
solar plants by 2017, more than eight times its current
capacity. Solar-power producers are assured payments through
letters of credit and escrow mechanisms set up by state
governments, according to Saibaba.
With costs for alternative energy projects coming down, the
tariff for solar and thermally produced electricity may reach
parity in about three years, Saibaba said.
Interest Costs
Better potential realization is also helping lenders offer
cheaper credit for solar producers, said Satnam Singh, chairman
of Power Finance Corp., India’s biggest state lender to
electricity utilities.
“We cut lending rates for renewables this month because we
see better returns in the near future,” Singh said in an
interview. Of the 23.7 billion rupees sanctioned by Power
Finance to renewable companies in the year ending March 31, 15.8
billion rupees was to Lanco Solar, he said.
Solar companies have to pay interest rates as high as 13.5
percent to 14 percent in India, Saibaba said. The weighted
average cost of debt for NTPC Ltd., the nation’s biggest power
producer, was 8.6 percent according to data compiled by
Bloomberg.
India’s policy draft released in December said the
government would for the first time fund the solar industry with
direct grants covering as much as 40 percent of the upfront cost
of building projects. That model has previously been used to
build roads, ports, railways and fossil-fuel power plants in
India.
Slow to Fund
Private lenders have been slow to fund solar because of a
lack of confidence in the technology, according to the draft.
Solar companies in India sell power to state utilities which in
turn cannot recover their costs from customers who buy power at
lower rates.
Lanco will add 90 megawatts of solar capacity by the end of
the fiscal year ending March, including a delayed 75-megawatt
photovoltaic project for the local state-owned utility in the
western Maharashtra state that it won in May 2011, he said.
Another 100 megawatts of capacity being built using solar-
thermal technology in northern Rajasthan state has been delayed
by a year, Saibaba said. The project, awarded under the first
phase of India’s solar auctions in 2010, had to be reengineered
to make allowances for differences in radiation levels and
delays in getting heat-transfer fluid from U.S. suppliers, he
said.
‘Still Grasping’
Lanco Solar is completing a manufacturing plant that will
be able to produce 1,800 tons of polysilicon, 100 megawatts of
ingots and wafers and 75 megawatts of modules a year, Saibaba
said. The company expects to increase that capacity to 250
megawatts of modules annually in three years, he said. The total
cost of this plant is 13.4 billion rupees of which 70 percent
has been funded by loans, he said.
Private investors may look at the government’s commitment
to support alternative energy sources before pledging any funds,
said Mahesh Patil, who manages $2.5 billion in equity as co-
chief investment officer at Birla Sun Life Asset Management Co.
in Mumbai.
“Investors the world over are still in the process of
grasping the business dynamics of solar-power developers,”
Patil said. “Secondary markets, at least in India, aren’t yet
ready to support share sales by renewable-energy companies.”
To contact the reporter on this story:
Archana Chaudhary in New Delhi at
achaudhary2@bloomberg.net
To contact the editor responsible for this story:
Sam Nagarajan at
samnagarajan@bloomberg.net
