Reliance Power's $4.2 billion 3,960MW Sasan ultra mega power project (UMPP) is not the first deal in India's UMPP programme to finance, that accolade went to Tata's Mundra UMPP financing in April 2008. But it is the first to close financing without multilateral or international commercial bank debt – Sasan is an all-Indian bank financing with a foreign currency tranche thrown in by India Infrastructure UK. That was a major achievement for both sponsors and lenders in a very difficult 2009 banking climate, an achievement compounded by the fact that the deal was also the largest project finance debt syndication in India to date.

With the global lending markets frozen Sasan faced a far more difficult lending environment than Mundra had the previous year. However, unlike Mundra, the Sasan project also has captive coal mines allocated that mitigate fuel procurement risk and enable it to produce electricity at a very competitive cost – the levelised tariff for the project is Rs1.196 per unit of electricity produced compared to Rs2.26 on Mundra. The risk mitigation, competitive cost of production and strength of Reliance Power's parent Reliance ADA Group, gave domestic lenders added comfort.

Sasan is the first of three UMPP projects in India being developed by Reliance Power and will supply power to 14 offtakers across seven states under 25-year power purchase agreements (PPA). The project is also the first coal mine pit head based supercritical UMPP and will be located at the Sasan Village in Sidhi district on the border of Madhya Pradesh and Uttar Pradesh states. The use of supercritical technology will achieve high fuel efficiency and low emissions, thereby earning Sasan CDM carbon credits.

Sasan will have six units of 660MW and is being implemented on a turnkey EPC contract by a consortium of Reliance Infrastructure Limited and Reliance Infra Projects UK Limited. The EPC contractor has in turn awarded the BTG contract to Shanghai Electric.

The construction of the power plant is expected to take 57 months with the first unit achieving commercial operations date in 42 months from notice to proceed, and the next five units at intervals of three months each. The project is expected to be fully operational by March 2013.

The entire 15 mtpa coal feedstock for the plant will be sourced from three captive coal blocks in Singrauli Coalfields – viz Moher, Moher-Amlohri Extention and Chhattrasal – 25-60km from the site. The entire water requirement for the project is proposed to be met from the Govind Vallabh Pant Sagar reservoir – about 12km from the plant site.

The Rs146 billion ($3.2 billion) debt for the project was lead arranged by SBI Capital, with Reliance providing $1 billion in equity, and is split into 15- and 20-year tranches. State Bank of India committed Rs35 billion to the project, India Infrastructure Finance Company (IIFCL) Rs32 billion, Power Finance Corporation (PFC) Rs17.7 billion, Rural Electrification Corporation (REC) Rs13.42 billion, Punjab National Bank Rs9 billion, Axis Bank and IDBI Bank Rs7.5 billion each. United Bank of India, Bank of Baroda, the, Life Insurance Corporation, Andhra Bank, Corporation Bank and Union Bank of India provided the remainder.

The IIFCL lent most of its Rs32 billion participation in dollar debt (around $500 million). IIFCL sourced the dollar debt – which goes towards dollar project costs – through its UK-based subsidiary IIFCL UK.

Tenor on the REC and PFC debt is 20 years (5 years construction plus 15) with the remaining lenders agreeing to 15 years. The debt pricing for all lenders is pegged flat with the SBI's Prime Lending Rate (PLR) until the construction period is over. When the plant is commissioned the lending rate flicks back to PLR minus 25bp for the remaining years.

The deal includes a 50% bullet repayment on the balance of the 15-year debt via refinancing – the project is unlikely to repay the full loan amount through internal accruals – while lenders on the 20 year debt receive repayments in equal quarterly instalments from the start of the repayment of loans.
The Sasan story is not over. At time of financial close Standard Chartered was mandated to arrange commercial funding from international banks, as well as an ECA tranche, at a later date: The Sasan loan agreements, like many Indian project financings, contain an option to replace up to 30% of undisbursed senior debt with foreign currency lending within three years of financial close.

With the international debt markets becoming more liquid, Standard Chartered has recently obtained approval from the Reserve Bank of India for external commercial borrowing of up to $2 billion for the project, which would enable Reliance to take advantage of low Libor rates and could result in substantial savings.

Furthermore the project itself may be significantly expanded by up to 6,000MW. An Indian government decision to allow Reliance to sell excess coal from its Sasan allocations to other power plants prompted protests from other developers last year as the coal reserves were originally allocated solely for the UMPP. The plan to soak up that coal by expanding Sasan may ease objections.

SBI has been mandated to arrange financing for the expansion and is in due diligence. The debt to be raised will be around Rs230 billion.

Sasan UMPP
Status: Financial close 21 April 2009
Description: $4.2 billion 3,960 MW super-critical pit-head
coal-fired power generating plant at Sasan, in Madhya Pradesh, India and the development of associated captive coal mines.
Sponsor: Reliance Power/Reliance ADA Group
Lead arranger and financial adviser: SBI Capital
Rupee term loan tranche I: State Bank of India, Punjab National Bank, Life Insurance Corporation of India, IDBI Bank, Axis Bank, IIFCL (India), Corporation Bank, Andhra Bank, United Bank of India and Bank of Baroda
Rupee term loan tranche II: Power Finance Corporation and Rural Electrification Corporation
Foreign currency tranche: India Infrastructure (UK) Ltd
Lender legal counsel: Luthra & Luthra
Sponsor legal counsel: Paul, Hastings, Janofsky & Walker
Technical consultant: Lahmeyer International (India) Pvt. Ltd
EPC Contractors: Reliance Infrastructure Ltd; Reliance Infra Projects UK Ltd