Signed in late July, the Utkal Alumina deal is the latest and strongest indication that foreign lenders are prepared to get back into the Indian project finance market for the right credits. Of all banks, RBS, with its self-professed emphasis on UK lending, is one of the most unlikely to take a mandated lead arranger role on an Indian domestic Aluminium project financing – but it has.

Sponsored by Utkal Alumina International, a subsidiary of Hindalco Industries with which RBS/ABN Amro has had a longstanding relationship, the Rs70.09 billion ($1.57 billion) alumina refinery project comprises a 1.5mtpa, 8.5mtpa of bauxite mines (the 195 million tonnes Baphlimali deposit), a 90MW captive cogen plant (with feedstock from Mahanadi Coalfields), a 20km conveyor from the bauxite mines to the refinery, and a range associated infrastructure. All offtake from the project is expected to be taken by Hindalco which is putting Rs21.03 billion of equity into the scheme.

The project features a mix of standard lump sum turnkey contracts with equipment vendors and EPC management contracts with technical consultants. The build management model involves technical consultants carrying out basic engineering, procurement technicals, construction management and inspection. Civil works and erection will be carried out by site contractors. Utkal will procure the equipment and commission the plant with assistance from consultants.

Lead arranged by SBI Capital, IDBI Bank and RBS, the project debt comprises an 11.5-year Rs49.06 billion term loan – the tenor includes a one-year grace period and two-and-a-half year construction period. Debt repayment is in 32 quarterly instalments spread over eight years. COD is scheduled for December 2012 and thus the first repayment instalment will be due in December 2013.

Margin on the debt is 325bp over the SBI base rate, although the interest rate can be reset annually without penalties thus enabling the sponsor to take advantage of lower rates post-COD. The deal also features a cash sweep to give added lender comfort.

The debt pulled in bank takes from 28 lenders in total and was 2.23x oversubscribed when syndication closed in February 2010. IDBI Bank (facility agent), State Bank of India (trust and retention accounts) and RBS have committed exposures of Rs6.5 billion, Rs6.5 billion and Rs3.3 billion respectively.

The participant banks are: Allahabad Bank, Andhra Bank, Axis Bank, Bank of Baroda, Bank of India, Canara bank, Corporation Bank, Dena Bank, Dhanklaxmi bank, Export-import Bank of India, HDFC Bank, Indian Overseas Bank, IndusInd Bank, Jammu & Kashmir Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, Syndicate Bank, UCO Bank, United Bank of India, Vijaya Bank and Yes Bank.

Utkal was originally incorporated as a joint venture between Hydro Aluminium Alcan, Indian Aluminium Company (Indal) and Tata Industries. `After a number of changes in the ownership line-up, Hindalco bought Alcan’s share in 2007 and became sole owner of Utkal in 2008 when Hindalco merged with Indal.

Hindalco is one of the lowest cost aluminium producers in the world and has a vertically integrated structure from bauxite mining to smelting and downstream sheet and foil rolling, extrusions and alloy wheels. Hindalco’s aggregate alumina production is 1.23 mtpa and aluminium production of 500,000 tpa.

The Utkal refinery will use tried and tested Bayers process technology for alumina extraction from bauxite. The estimated bauxite feedstock for the refinery is 4.25 mtpa which will be supplied from the Baphlimali bauxite deposit. The deposit mining licence has been transferred from Orissa Mining Corporation to Utkal.

The 90MW cogeneration plant will require around 0.92 mtpa of coal feedstock which is to be supplied by Mahanadi Coalfields Ltd.

Hindalco is also in talks with banks to finalise a Rs80 billion loan for the Mahan Aluminium project in Madhya Pradesh. The Mahan Aluminium project consists of a smelter and 900MW power plant. The project has access to the Mahan coal block (off the main basin in the Singrauli coal fields) through a joint venture with Essar Power. Hindalco’s share in the coal block is about 3.6 million mtpa.

Utkal Aluminium
Status: Signed July 2010
Description: Rs70.09 billion alumina refinery project in India
Sponsor: Utkal Aluminium/Hindalco
Lead arrangers: SBI Capital, IDBI, RBS
Participants: Allahabad Bank, Andhra Bank, Axis Bank, Bank of Baroda, Bank of India, Canara bank, Corporation Bank, Dena Bank, Dhanklaxmi bank, Export-import Bank of India, HDFC Bank, Indian Overseas Bank, IndusInd Bank, Jammu & Kashmir Bank, Oriental Bank of Commerce, Punjab National Bank, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, Syndicate Bank, UCO Bank, United Bank of India, Vijaya Bank and Yes Bank.
Lender legal counsel: Amarchand Mangaldas
Sponsor legal counsel: Dhir & Dhir
Project managers: Uhde (refinery), Fichtner (power plant)