The Banking and Strategy Initiative

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NTPC Divestment | Advantage Infrastructure

High angle view of a fifty Euro banknote and Indian banknotes

GOI plans a French Auction from Feb 3-5 for the NTPC IPO. The French Auction will enable best price discovery but trading will be halted for the period because of government concerns about quality of FIIs and QIBs in the country. The Market Price ruling at 240, means the FPO could even take the bids higher, but unlikely as a common cut off is in place per the rules of the French auction to be announced on Saturday Feb 6. Retail Investors get a discount of 5% as last month in Jindal Energy. NTPC is one of the heaviest weighted Sensex scrips. In a separate development GMR got thru to investors for its Power unit’s 15% stake. Again it looks as if we have short-sold the plot for less than 10000 Crs while disallowing retail investors from participating. The volumes continue to be dry.

A French Auction allows the Institutional bidders to act for discovery during the bidding window and eliminates virtual market orders that are too high, allowing bidders within the specified range ( above the floor price) to get pro-rata allotment at the final price ( to be fixed on Feb 6, in his instance)

ISEC is running this mandate with Morgan Stanley. ICICI Securities results tomorrow may show some gains from such large mandates of 2009 and will continue to get traction in 2010 but Government has already asked Merchant Bankers to bid for all issue costs in a basket before the mandate is awarded and that may not be comfortable for Kotak, I-Sec and other domestic players

NTPC has a commissioned capacity of 30K MW. Dabhol may also get a 2000MW unit from NTPC in the current premises. NTPC will also be selling 10% of its Power in Market Auctions/Contracts where prevailing prices go as much as Rs 17 per unit for distribution companies and Corporates for their requirements. This will increase NTPC profits by approx 15 billion units of Power sold at a price of Rs 12 or Rs. 18,000 Crores even. It may well add at least Rs 5-6000 Crores to the bottomline depending on how much is sold. Rs 12 is assumedly the cap at which merchant power will be allowed by the GOI. That’s a cool $1.2 billion or a quarter of Infosys revenue

Note on Project Costs and Others: Chinese equipment and labor requirements have in general kept the Power Infrastructure projects tracking. However, the timelines may be staggered because of the current impasse where India is negotiating for more labor concessions in China and eliminating security concerns for the people and equipment imports. industry experts vary in financing a Power unit (UMPP) at Rs 2Cr to Rs 6 Cr per MW, which is also quite a wide range. We have also never managed to export our Project Capabilities in Power to Africa to any significant amount. We may lag behind China here, despite BHEL and NTPC.

Also two Transcos have been approved for bidding by REC for Kpatnam run by AP Transco and Tiliana. Companies like Jindal had also planned Transmission projects over Rs 600 Crores for the Bellary plant. REC currently earns a 300 bp spread on its loans with lending capped at an easy 11.5%. Though there is no legal limit on its lending rates.. REC also manages the bidding process on behalf of Power Transcos and Distcos ( state-owned) K’patnam plant for example would be part of AP Transco’s 800 cr 2010 disbursal. In AP over 5 lakh villages have been electrified and around 15% remain to be electrified.

(REC Interviews on Bloomberg UTV, ETNOW with NTPC FPO, Other research includes sources at our India archives and the India Brand Equity Foundation)

NTPC gets on the road for bidding (price INR 200- 220)

UPDATE: From the NTPC Road Show ( WSJ>com, NTPC Secures Debt )

[ INR 100 billion = INR 10000 Crores ] [India’s Current Total Power Capacity = 75 GW (Peak)]

NTPC Ltd. has arranged 450 billion rupees ($9.74 billion) in loans to help raise its power generation capacity to 75 gigawatts by March 2017 from the current 30.6 gigawatts.

The funds will be used to build new plants and to modernize existing ones, Chairman R.S. Sharma told Dow Jones Newswires late Friday.

He didn’t specify exactly how much the expansion will cost in total, but he said that 70% of the money will come from debt and the rest from the company’s cash reserves.

The company plans to invest 250 billion rupees to add 4.5 GW of capacity in the next financial year that starts April 1, up 41% from this fiscal year’s 177 billion rupees.

But NTPC will miss its target of adding 3.3 GW of generation capacity this fiscal year, and may end up adding only 2 GW, Mr. Sharma said.

“We have planned a little bit aggressively. There were slippages. But next year it will be 100%, no slippages are going to take place,” he said, speaking from New York.

NTPC’s capacity expansion plan is in line with the federal government’s aim to improve the nation’s infrastructure.


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