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IDBI recalls loans to Essar Power

Tamal Bandyopadhyay & S Ravindran

The Industrial Development Bank of India has recalled its loans to Essar Power Ltd. Earlier, ICICI had also issued a letter stating its intention of withdrawing loans to the power company, but withdrew the letter subsequently.

IDBI is demanding payment of outstanding dues. EPL has paid Rs 320 million out of IDBI's demand for Rs 400 million as interest overdues and the company is negotiating with the bank to withdraw the recall notice, EPL sources said.

Institutional sources said that despite earning net profits during the last four years, EPL had defaulted in its repayments and its track record had been "unsatisfactory." The lenders also claimed that the company does not appear to be "sincere" in clearing the overdues and pursuing the restructuring proposal it had submitted sometime back.

EPL, meanwhile, is disputing the overdues. It has contended that the lenders have charged an excess of Rs 2.27 billion by denying the company tax benefit under Section 10(23G) of the Income Tax Act. The finance bill for 2001-02, however, denied the tax benefit with retrospective effect from 1962-63.

EPL submitted a fresh recast plan in April, which envisaged restructuring Rs 12 billion worth of debt by floating infrastructure bonds in two tranches of Rs 6 billion each.

The eight-year instrument may carry a coupon rate of 11 per cent. The company has requested the institutions- ICICI, IDBI and IFCI) -to swap the existing debt with the infrastructure bonds.

When contacted, EPL officials said: "The company has been making all efforts to meet its debt obligations satisfactorily and has during 2001-01 effected payment of about Rs 3.25 billion, as against the claim of Rs 2.70 billion by the institutions and banks (without considering the Section 10(23G) benefits).

"The company has been subjected to a very high rate of interest by the institutions and has over the last three years paid in excess of Rs 7.35 billion on a total loan of Rs 12 billion. The cost of funds for the infrastructure project is exorbitantly high at 21 per cent-well above the prevailing interest rates."

Company officials also pointed out that EPL had been able to improve its receivables from both Essar Steel as well as the Gujarat Electricity Board, which buys power from EPL.

"In order to reduce the cost of power to customers and avoid future mismatch of funds, it has sought debt restructuring from banks and FIs. The debt restructuring will be completed shortly," officials said.

Essar Power is among India's first independent power producers and generates 515 mw power. It posted a net profit of Rs 630 million in fiscal 2000.

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