Tata Power's debt financing for its $1.06 billion 1,050MW Maithon Power thermal plant, demonstrates the growing appetite of Indian domestic banks for power debt, even with only partial merchant risk.

The deal is the largest of a number of recent tests of Indian banking appetite, given the upcoming financing demands of India's fast-growing power generation sector. For example, Adani Power has also just closed a large dual-currency facility for its Mundra phase 3 coal-fired plant, on which the rupee debt was the bigger tranche and heavily oversubscribed.

Both deals bode well for Tata Power which is also sponsor of the 4000MW Mundra ultra-mega project, which is expected to reach financial close during the second quarter 2008 – the first of the ultra mega projects to get to this stage.

The 1,050MW Maithon project, located in the Dhanbad District of Jharkand State in northeastern India, is a joint venture between Tata Power and state-owned Damodar Valley Corporation (DVC), which plays a key role in promoting power generation and electricity distribution, as well as being involved in other activities such as flood control.

Tata holds a 74% stake in Maithon Power Limited, with DVC holding the other 26%. Maithon Power has been financed with the help of a relatively generous slice of equity, and has a 70:30 debt to equity ratio. Bank lenders also derive comfort from DVC being a government entity, though the debt is non-recourse.

The project is largely underpinned by bankable power purchase agreements with various offtakers, including DVC itself for 300MW and up to 500MW for various power-deficient northern states through Tata Power Trading and open access from Power Grid Corporation of India. The remaining 250MW will be sold on a merchant basis: Maithon is also the lowest bidder for 309MW of power requirements of Distribution Licencees of Delhi.

A long-term coal supply contract has been signed with the nearby Bharat Coking Coal Limited mines and water allocation is from the Maithon reservoir.

The greenfield project comprises two 525MW pulverised coal-based generating units, the first of which is expected to be commissioned by October 2010. The second unit will be commissioned by March 2011.

The Rs3,115 crore ($785 million) debt financing was arranged by SBI Capital with parent State Bank of India taking the biggest slice – Rs1,000 crore – onto its own book. The debt is priced on a 10.75% base rate with an annual reset, which fixes the margin for lenders as each of them has its own lending base rate. Repayment is in quarterly instalments from the start of operation of each unit and upon maturity in 14 years there is a 50% balloon that will then be refinanced.

Banks that joined the deal are: Allahabad Bank, Bank of Baroda, Canara Bank, Central Bank, Dena Bank, Indian Overseas Bank, J&K Bank, Oriental Bank of Commerce, Punjab & Sind Bank, Tamil Nadu Mercantile Bank, United Bank of India, UCO Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore and State Bank of Saurashtra. According to SBI Capital, syndication was oversubscribed by Rs1,050 crore.

Attention at Tata Power is now focused on the much bigger Mundra Ultra Mega Project, which will be a more complex non recourse debt package featuring ECA and development bank loans, and some covered bank debt in addition to a domestic rupee-denominated tranche.

"SBI Capital Markets is advisor on the project and is also mandated to arrange the domestic financing for Mundra, and a sizeable number of the banks in the Maithon debt syndicate are also likely to be seen participating on the domestic portion of the Mundra deal," comments a Mumbai-based analyst.

"However, since DVC is a state-owned entity, Maithon clearly has a different flavour to a private sector sponsor putting in place non-recourse project financing, so the banks would have looked at that deal in a very different way to the upcoming private sector projects," adds a banker based in Mumbai. "But Tata Power is a very credible sponsor, and domestic banks should have a strong appetite for the Mundra project debt."

The Mundra project company – Coastal Gujarat Power Limited – has signed an agreement with Toshiba Corporation to supply five 800MW turbines, and had previously signed a contract with Doosan Heavy Industries and Construction for the boilers. The involvement of these two suppliers is bringing with it support from Japan Bank for International Co-operation (JBIC) and Korea Eximbank (Kexim).

With total project cost of $4.14 billion, Mundra is also going to rely heavily upon multilateral support. The IFC is throwing its weight behind the ambitious Indian power generation programme, and has plans to take equity stakes in various ultra mega projects. Its equity contribution to Mundra is set at $50 million, along with a $450 million A loan. An additional $300 million B loan syndication is also being worked on.

While the tenor of the debt to be provided by domestic banks is expected to be around 15 years, the IFC loan will go out to around 20 years, allowing the project to be structured in a way which will reduce its risk profile and enable it to attract more foreign and local bank financing.

Asian Development Bank is also supporting the project, directly lending $450 million under its private sector loan programme, together with the planned syndication of a $300 million B Loan.

IFC and ADB are also expected to be involved in two 4,000MW ultra mega projects that are being developed by Reliance Power.

Maithon Power
Status: Financial close 4 February 2008
Description: 1,050MW thermal power project
Project cost: $1.06 billion
Sponsors: Tata Power, Damodar Valley Corporation
Lead arranger: SBI Capital
Participating banks: Allahabad Bank, Bank of Baroda, Canara Bank, Central Bank, Dena Bank, Indian Overseas Bank, J&K Bank, Oriental Bank of Commerce, Punjab & Sind Bank, Tamil Nadu Mercantile Bank, United Bank of India, UCO Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Saurashtra
Consultancy: TCE Consulting Engineers Limited
Sponsor legal counsel: J Sagar & Associates
Lender legal counsel: India Law Services