NEW DELHI/MUMBAI: State-run lender REC has lined up major plans to raise funds from overseas, preparing itself for the expected jump in demand for credit from all segments of the power industry, as the government aims to double capacities by 2032.The lender is planning to take a blended loan of up to $1 billion from Asian Development Bank (ADB) and Export-Import Bank of Korea (Korea Eximbank), chairman and managing director Vivek Kumar Dewangan told FE.
The company is also aiming to take another term loan of $500 million from KfW Development Bank for which the discussions are underway, he said. “We have already submitted PPR (performance progress report) to the (finance ministry),” he said, adding KfW Development Bank loan may later be increased to $1 billion. In FY25, REC aims to reduce its cost of funds by 12 basis points to around 7%. The company aims to increase its external commercial borrowing this fiscal and is initially targeting to raise $2 billion via green bonds.
After completion of this, it plans to raise another $6 billion. Last fiscal, the company raised $7 billion of external commercial borrowing.“External commercial borrowing and foreign currency borrowing has become a cheaper option for us as the RBI (Reserve Bank of India) is holding the repo rate steady at 6.5%. We have been able to bring down our cost of funding from foreign currency borrowing to say 6.6-6.7% against 7.5-7.7% in domestic borrowing,” Dewangan said. The company has so far been able to hedge 99% of its external commercial borrowing.
Moreover, the chairman noted that the Reserve Bank of India’s new draft guidelines on lenders’ project finance operations, if implemented, will not impact the company’s overall profitability, even as it may “marginally impact” its capital adequacy ratios as it follows the Indian Accounting System.
“Our profit is not going to be affected, return equity is not going to be affected at all. What will happen is additional provisioning will impact our impairment reserves,” he said, adding the company has a big cushion against the impact on its impairment reserves.
“Impairment reserves, which will be created through the additional provisioning, will impact our tier 1 capital and capital adequacy ratio. Since REC’s capital adequacy ratio is at 25.82% and tier-1 capital is at about 23.32% against the requirement of 15% for capital adequacy by RBI, we have a subsequent cushion.”The RBI move has led to correction in the stocks of REC and fellow power-sector lender PFC over the last two trading sessions. REC shares fell 2% on Tuesday, extending the loss.The chairman said most of the renewable energy projects funded by the lender are commissioned on time and hence should not bear any impact of the provisioning requirement. However, some large hydel projects and coal-based generation projects might be delayed at times which may require high provisioning. “These projects seem to take some time in commissioning, so perhaps high provisioning will be required. But overall since my capital adequacy ratio is good at 25.82%, I can take single exposure up to 30% for my tier-1 capital which is at `19,800 crore,” he said.
According to RBI’s proposal last Friday, lenders must maintain a provision of 5% for loans extended to under-construction projects. The provisions can be made gradually in phases till FY27. Once the project enters the operational phase, the provisions can be reduced to 2.5% of the funded loans. It can be further reduced to 1% of the funded outstanding provided that the project has achieved a certain business scale.REC also plans to infuse `500-crore capital into its recently approved subsidiary in GIFT city, Gujarat.
This, the chairman said, can be increased up to `5,000 crore depending upon the requirements.REC, through its subsidiary, aims to finance projects in the green hydrogen and green ammonia sector and has already sanctioned funds for two such projects in Orissa and Oman with a total project cost of `8,000 crore.“REC will be the first company among NBFCs to utilise this subsidiary for actual lending of green hydrogen-green ammonia projects. We have two such projects and for both we have lended in terms of dollars through GIFT city subsidiary,” Dewangan said.
Going forward, the company also plans to sanction aircraft leasing projects through its new subsidiary provided it gets recognised under the harmonised list of infrastructure.“Right now, aircraft leasing does not come under infrastructure financing. We cannot do it financing right now. But if it gets included in the harmonized list of infrastructure, then we do see huge potential in aircraft leasing through subsidiary gift city.”REC on Sunday had said it has received a ‘No Objection Certificate’ (NOC) from RBI for setting up a subsidiary in GIFT city, Gujarat. The proposed subsidiary will engage in a range of financial activities as a finance company within GIFT, including lending, investment, and other financial services, it had said.
Source: The Financial Express