Infrastructure major GVK is likely to depend on external credit agencies (ECAs) to fund at least 70% of the debt for its recently acquired Hancock project in Australia.
The entire outlay for development of the five Hancock projects — three coal mines, a rail and a port — is estimated at about $10 billion.
GVK is likely to fund the project with about $7.5-8 billion in debt while the balance would be equity. The financial project is likely to be completed in the first half of 2013 calendar year. ECA funding generally comes with a stipulation that development contracts for which the debt is availed are awarded to companies from countries where the credit agencies come.
“One of the bidders in the port is a Korean company. If we go ahead with that company, the Korean Exim Bank and Ksure, the insurance arm of the government, are willing to fund the entire port project. One of the bidders of the rail line is a very large Chinese construction company. If we go with it, we have China Exim Bank and China Development Bank willing to fund the entire rail line. They will fund 100% of the debt,” a senior functionary of GVK said.
Even in the mining part of the project covering all the three coal mines, GVK is evaluating the option of depending on ECAs for most of the funding instead of knocking the doors of commercial banks.
“A lot of the mining equipment is going to be imported from the US. The US Exim would fund the entire mining equipment,” he said.
With 70% of the debt coming from ECAs, GVK would have need to raise $1-1.5 billion from commercial banks. However, on the cost front, the group is still evaluating the cost structure of each of the agencies. For instance, he said, the US Exim asks for a significant upfront fee and much lower interest. “The ECAs take a little longer time to evaluate proposals and finalise them. But once they do it, they are very cost-effective. ECAs can give you 16-18 year money, which is very long-term whereas international commercial banks do not give loans for more than five to seven years. The commercial banks will only fund you at the time of construction, and at the end of it they want you to refinance. If you want long-term money, only ECAs can give you and it is not possible to get it from the commercial banks,” he said.
GVK is expecting to see the first lot of coal production in 2016 and then start ramping up the capacities. The group is said to be getting orders for supply of coal from countries, including China and Korea. It is also making arrangements to import coal from Hancock mines to fuel its power projects in India.
Though other Indian power companies are keen on buying coal from the mines, GVK may focus on its own supplies first and then evaluate other proposals.