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DPC lenders plan 1-2 per cent rate cut to save project

BS Banking Bureau

Lenders to the $3-billion Dabhol Power Project are ready to make "sacrifices" to save the controversial project from sinking.

According to sources, Indian lenders-Industrial Development Bank of India and State Bank of India-are considering between one and two percentage point cut in interest rates to bring down the cost of funds for the promoters. Other domestic lenders -- ICICI, Industrial Finance Corporation of India and Canara Bank-may also follow suit.

The Indian lenders are also not averse to the idea of raising the moratorium on loan repayment by at least one more year. The moratorium is currently pegged at one year. Besides, they are also willing to consider stretching the repayment schedule from the existing level of nine years to about 12 years.

"The single point agenda is to complete the project. The lenders are ready to make sacrifices if that will help," said a source.

To bring down costs, the Godbole Committee had recommended conversion of the foreign currency loans into rupee loans. However, at this stage, none of the Indian lenders are willing to do so as it would increase their exposure. But they could, at a later stage, convert the forex loans into rupee loans. Following the government's external commercial borrowing guidelines, 25 per cent of forex loans can be converted every year following the pre-payment route.

Both IDBI and SBI had cut interest rates earlier also. While IDBI slashed it from around 19 to 16.5 per cent, SBI cut it from around 17 to 15 per cent. The average interest cost for the phase I rupee loan is pegged at 16.5 per cent and that of phase II at 16.11 per cent. A percentage point cut in interest rate can translate to only about 2 paise lowering in tariff of the project.

The lowering of six-month Libor from over 5.5 per cent two years back to 4.25 per cent now has also brought down the cost of forex loans for the project.

The Dabhol project has already had a cost over-run of $150 million. However, this has not been borne by the lenders.

Three Indian lenders -- IDBI, ICICI and SBI -- have a guarantee exposure to the tune of Rs 30 billion, besides funded exposure of around Rs 22.55 billion.

In rupee terms, the three lenders have a guarantee exposure of Rs 10.39 billion to phase I and Rs 19.60 billion to phase II. The outstanding rupee term loans on the Indian lenders' books is to the tune of Rs 2.50 billion for phase I and Rs 11.56 billion for phase II. Besides, SBI also disbursed $141 million worth of foreign currency loans in phase II.

"The decision on moratorium on payment or maturity of loans can only be taken at the Singapore meeting on June 5-6, when the global lenders will discuss the future of the project. However, the Indian lenders can go ahead and cut the rates on the rupee loan on their own," a source said.

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