NTPC To Raise Rs 5,500 Crore From Foreign Investors

State-owned power producer, NTPC, has floated a request for proposal (RFP) to raise $750 million (Rs 5,500 crore) through external commercial borrowings (ECB). The company is looking to use the funds to refinance existing ECB and rupee obligations, fund capital expenditure, increase coal mining, build washeries, renewable projects, renovation and modernisation of projects etc.

“NTPC is looking to raise external commercial borrowing (ECB) in the form of term loan amounting to $500 million plus a green shoe option of $250 million, subject to applicable statutory approvals,” the company said in the RFP.

A green shoe option allows the issue to be stable and have ample liquidity. A green shoe option is used to prevent the perception of a weak issue, wherein the underwriter oversells securities by a predetermined amount. Later, the securities are bought back from the open market. Hence, short sellers do not need to be long on the security as they just cover the short position. When the security closes above the offering price, the green shoe option is exercised, allowing the underwriters to close the position without a loss.

“The loan shall be unsecured, without any guarantee or letter of comfort from the government of India. Negative lien will be provided with carve out for certain permitted borrowing for which security can be created by the company,” NTPC said in the RFP document.

NTPC has been adding capacity continually to meet India’s growing electricity needs. It has already taken the board’s permission to augment its borrowing limits by around 12 per cent from Rs 2 lakh crore to Rs 2.25 lakh crore.

For renewable energy projects, it uses 70 per cent debt to finance the project, whereas the traditional projects use capital that comprises of 80 per cent debt. Given the guaranteed return on regulated capital employed its business enjoys, NTPC can use leverage quite liberally. Nevertheless, the debt to equity ratio has remained at comfortable levels of around 1.35.

ECBs allow India companies to raise loans at a lower cost in countries such as Japan, United States of America and the European Union. Recently, Reliance Industries raised ECB loans at tight spreads over the US treasury. NTPC too, has been raising money to fund its capex initiatives. In February 2020, it had raised the largest Yen loan by an Asian corporate, at $ 750 million.

The maturity period of the term loan would be seven years under the proposed ECB, according to the RFP. Debt repayments will be made in seven equal annual instalments starting from the fourth year. The last date for submission of bids is 31 January, said the company.