India Power under stress

Srei Group promoter Kanoria-family owned India Power Corp Ltd (IPCL) is coming under financial stress as two of its upcoming power plants are yet to firm up offtake agreements.

Rating agency CARE has raised concern over high debt level and would give any kind of upgrade only if there is visibility in power purchase agreements (PPAs) or deduction of debt level, which according to company management is about Rs 6,000 crore at a consolidated level.

"The outlook on the long-term rating is negative on expectation of deterioration in financial risk profile due to high debt levels in IPCL and power offtake risk in its group power generating companies. The outlook may be revised to stable in the event of reduction in the current debt levels with better visibility of the power selling arrangements," CARE has recently said in a rating action.

For arriving at the ratings, CARE has combined the risk profile of IPCL and its group companies like India Power Corp (Haldia), Meenakshi Energy, India Power Corp (BodhGaya).

The Kanorias are however of the view the debt level is quite low and manageable.

"Relatively our debts levels in the plants are quite low with a debt-equity ratio for Meenakshi being 0.7, much lower than industry average," managing director Raghav Kanoria told DNA Money.

The rating of single A with negative outlook is constrained by exposure to regulatory risks, low power prices and exposure including non-fund based Rs 3,022 crore in the group power generating companies having high power off take and project implementation risks.

"None of the discoms are coming up with PPAs as there is no demand. We don't see long term PPAs happening any time soon," Kanoria said.

Power sales under short term to medium term contracts are what IPCL is banking on.

"About three-four states have come out with short term five months tenders including Maharashtra and Chhattisgarh," Kanoria said.

The states, he said, are preferring short term PPAs rather than long-term deals for 15 years.

"The concepts of long term PPAs are becoming are going out of fashion as the discoms now want to take advantage of fluctuations in power costs and don't want to get into long term binding rates. So, from now on we have to depend on such short-term contracts."

Out of 1450mw of power capacity, India Power has so far inked deals for just 200mw, that too for short term with respect to Meenakshi Energy.

Out of Meenakshi Energy's proposed 1000mw capacity in Andhra Pradesh, 300mw has been commissioned, while the completion of the balance capacity has now been pushed to December.

India Power is also setting up a 450 mw (150 mwx3) power plant in Haldia, West Bengal of which one unit of 150mw has been commissioned so far.

In absence of power sale deals, IPCL is delaying completion of the projects, chairman Hemant Kanoria said.

...& ANALYSIS

• Power sales under short term to medium term contracts is what IPCL is banking on
   
• CARE has raised concern over high debt and would upgrade only if there is visibility in PPAs