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Cover Story

“ECBS & Fccbs are more Beneficial to us”
H. D. Khunteta, CMD, Rec, talks to Karan Arora on Moving to Transmission Financing & Foreign funding Instruments
Issue Date - 21/07/2011
B&E: REC in recent times has shifted the focus to fund power projects including generation. How important is this shift?
HDK: While traditionally funding for development of country’s transmission and distribution system with focus on rural electrification projects and with minuscule portfolio of mini-micro generation projects up to 25MW, the break came in 2002. Given the constraints in funds requirement for the sector, the Ministry of Power expanded the mandate of REC to include generation projects as well and that too without any cap on size and location.

B&E: What has been your loan book growth this time around despite higher cost of funds? And what are the challenges that you perceive to your margins?
HDK: MoU for 2011-12 loan disbursement expected to increase in loan book growth is 23%. Like in earlier years, the company expects to maintain the margins with a better mix of funds. Higher interest rates, uncertainty about fuel supply to the funded projects and competition generated by the commercial banks are challenges that we face.

B&E: Given the constraints on bank lending to the infrastructure sector, rural infrastructure funding holds a great potential. What are the company’s growth plans for the coming years?
HDK: Considering the huge fund requirement in the power sector, REC has a target to maintain its growth at 15-20% in years to come. The growth of demand each year as articulated in the 11th Plan documents lower growth in disbursement of funding by REC. The disbursements are commensurate with the ever growing sanctions of projects and its implementation pace & are expected to grow at the same levels.

B&E: REC is planning to raise $1.75 billion to finance its power & generation projects through a combination of FCCBs & ECBs. Why do you think funding the projects through FCCBs & ECBs are better options?
HDK: Currently in the international market, ECB can be raised at competitive rates. Even with full hedging costs, the landed cost is competitive as compared to domestic borrowing of similar tenure. Moreover, with ECBs, we may adopt appropriate hedging strategies to further reduce cost of borrowing. FCCB is a hybrid instrument, with characteristics of both debt and equity. They would be more beneficial to REC as compared to issuing pure equity.


Karan Arora           

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