This could well be a power blow to Lanco Infratech.
The infrastructure company, which is building a 1,200 mw thermal power project in Udupi district of Karnatka with an outlay of Rs6,000 crore, has failed to make the repayment due on January 15 to its lenders.
The project, being developed by its subsidiary Udupi Power Corp (UPCL), carries a debt of about Rs4,500 crore.
Company officials argue it isn’t a default, but a delay in repayment.
Analysts, however, have turned cautious on the stock, raising the spectre of default.
“As CRISIL mentioned in its ratings rationale for its January 4 downgrade of UPCL’s long-term debt and bank guarantees, a default on the January 15 debt repayment could trigger another rating downgrade, fanning concerns of potential bankruptcy and, once again, denting stock price performance,” Nomura analysts Anirudh Gangahar, Ivan Lee and Ankit Kumar said in a report dated January 13.
A senior Lanco official reasoned that about 90% of the power produced by the plant is offered to distribution companies, or discoms, of the Karnataka government, which owe it about Rs500 crore. “There is a difference in the price agreed for supply of power and the price that is being offered now. The difference is to the tune of about Rs500 crore. Since our monies are stuck with the government, we have delayed the repayment. We are working on the issue and we hope to sort out the repayment issue in a month or two.”
Lanco had earlier completed the first unit of the project with a capacity of about 600 mw. However, the second unit, of another 600 mw, was delayed as the transmission lines to evacuate the power got stuck in environment clearances.
In fact, the commissioning of the second unit is said to be behind schedule by about 18 months with the Karnataka government unable to secure the required approvals for setting up transmission lines to evacuate power from the unit.
It is only recently that the Ministry of Environment and Forest has cleared the transmission line to evacuate power from the second unit as well and the lines are expected to be ready by March — a development seen as positive for the company.
But just as things were looking up comes news that the company failed to make a repayment of about Rs90 crore falling due to the banks.
With this, the credit rating agencies too have downgraded UPCL’s long-term debt.
“While UPCL’s default on its (non-recourse) debt repayment obligation is clearly disconcerting, arguably, the circumstances/cash flows are likely to normalise by 3QCY12 — MoEF clearance for setting up the 400kV transmission line provides visibility on the CoD timeline of the entire 1200 mw capacity, although commissioning the line before the onset of the monsoon (in May) is a tough ask. UPCL has filed a petition with the CERC for determination of tariff for both the 600 mw units, seeking an approval of a 16% hike in fixed cost from about Rs4,900 crore to about Rs5,700 crore (excluding additional capitalisation in FY14) on account of KPTCL (Karnataka Power Transmission Corporation) being unable to secure MoEF clearance to build the transmission line (KPTCL issued a ‘force majeure’ notice stating an inability to commission the line before June 2012),” the Nomura analysts noted.
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