Jaiprakash Industries has raised financing of the 300MW Baspa II project in India by posting itself as collateral. Tim Sharp reports

Cash-strapped but project-rich Indian civil engineering conglomerate Jaiprakash Industries Ltd (JI) raised a further US$35M towards financing its key 300MW run-of-river Baspa II project in late February by posting itself as collateral. Lenders, led by the Industrial and Commercial Investment Corporation of India (ICICI), have accepted the deal.

In May 2001, JI sold 28% equity in its wholly-owned subsidiary Jaiprakash Hydropower – which owns Baspa II – to ICICI for US$30M, thereby raising fresh cash and changing the subsidiary’s legal status. Now that ICICI has a stake in the joint venture, it has underwritten what is in effect an unsecured loan.

However, JI still needs to raise at least the same amount again to cover the project’s latest US$345M total estimated cost that is close to US$60M over original estimates. JI has been talking to other potential investors and has paid up its own capital, but a US$30M shortfall still exists.

The project is crucial to JI because it would leverage it through its hydro power subsidiary from project contractor to project owner. It has two other BOO hydro projects in the pipeline – the 450MW Vishnuprayag scheme in neighbouring Uttaranchal and the 1000MW Karcham Wangtoo that would be built immediately downstream of Baspa II in Himachal Pradesh – but Baspa is the first one.

JI is also the civil contractor for the underground power house, claimed to be the largest in the world, at the much delayed and controversial 1500MW Nathpa Jhakri project, also downstream of Baspa II. Karcham Wangtoo would thus be the middle of a closely spaced three-project cascade on the Baspa river (Baspa II), a tributary of the Satluj river, and on the Satluj itself (Karcham Wangtoo and Nathpa Jhakri).

Baspa II hit financial difficulties when flash floods on the Satluj in July 2000 washed away two bridges on the 210km access road from Simla. Work came to a complete halt for ten months while the bridges were replaced. Roughly eight months of further delay have occurred before and after the stoppage. The target commissioning date is now July 2003.

But when work resumed in May 2001, JI moved quickly to bolster project finance. It brought ICICI in as minority shareholder on 27 May, opened so far unsuccessful talks with Canada’s CDP Capital to buy a similar shareholding in early June, and received shareholder approval to boost its own paid up equity in the joint venture late August 2001. It has now raised US$30M in fresh loans. If the remaining sum is also raised as credit, the project will have a 70:30 debt-equity ratio.
Related Articles
Spotlight on… finance