Recently, two power sector majors concluded significant debt deals in the overseas credit markets. Financing major Power Finance Corporation (PFC) mopped up $750 million through dollar-denominated bonds, making it the first Indian PSU to issue senior, unsecured, dollar bonds with a tenor of more than 10 years. Meanwhile, power generation behemoth NTPC Limited completed its biggest foreign currency financing to date, with a $750 million loan from Japanese lenders, making it the largest-ever syndicated Japanese yen (JPY) loan raised by any Asian corporate from the offshore samurai loan market.
Power Line takes a closer look at the recent debt deals…
PFC’s bond issuance
In January 2020, PFC undertook a $750 million senior unsecured USD bond issuance, as part of its $5 billion global medium-term note programme. The bonds were issued on NSE IFSC, in Gift City, Gandhinagar, and will also be listed on the India INX, the country’s first international exchange, and the Singapore Stock Exchange. This is the first-ever senior unsecured bond issuance by an Indian PSU with tenor of 10.25 years. This is also PFC’s third international bond issuance in financial year 2019-20 as well as its largest single-tranche bond.
The bonds were raised at a competitive coupon of 3.95 per cent per annum and received an overwhelming response from global investors, with the final order book crossing over $2.2 billion. The funds from this bond issuance would be utilised by PFC in accordance with the Reserve Bank of India’s (RBI) external commercial borrowings (ECB) guidelines, including for lending to power utilities. Post this issuance, the total foreign currency raised by PFC during financial year 2019-20 has touched $3 billion.
At present, PFC’s outstanding foreign currency borrowing is more than $6.5 billion, which is about 15 per cent of the total outstanding borrowings. During 2019-20, the financing major secured 25 per cent of its borrowing from foreign sources. The international investor base of PFC is quite diversified with respect to the class of investors as well as geographies, with investments flowing from the US, Europe including the UK, the Far East, Southeast Asia and the Middle East.
On the domestic front, with the support of the Ministry of Power and the Ministry of Finance, PFC has obtained approval for raising funds through 54EC capital gain tax exemption bonds, doubling its collection during this financial year over that in the previous fiscal.
NTPC’s JPY loan
NTPC Limited raised a syndicated JPY loan worth $750 million in February 2020. It is the largest-ever syndicated JPY loan raised by any Asian corporate from the offshore samurai loan market. This is also the highest-ever single foreign currency loan raised by NTPC. Interestingly, in April 2018, NTPC raised a $300 million equivalent 10-year samurai loan with Japan-based Aozora Bank joining in general syndication.
The current facility has a door-to-door maturity of 11 years under two tranches. Raised under the automatic route of RBI’s ECB regulations, the loan has been fully underwritten by the State Bank of India, Tokyo, the Sumitomo Mitsui Banking Corporation, Singapore, and Bank of India, Tokyo.
NTPC is expected to utilise these loan proceeds for funding its capex for the installation of flue gas desulphurisation systems that substantially reduce SOX emissions, hydro projects and projects using ultra-supercritical technology. The total capital outlay for 2019-20 is estimated to be Rs 200 billion. NTPC has a current installed power generation capacity of 58,156 MW, including 7,801 MW set up through joint ventures and subsidiaries.
These fundraisings are in line with the easing of borrowing norms by RBI in 2019. The central bank had rationalised the overseas borrowing norms, allowing a uniform borrowing limit of $750 million a year across tenors, for improving ease of doing business. The move was highly welcomed, as it helped corporates to exploit abundant overseas liquidity and overcome the tight domestic market that turned risk averse. Further, the overseas credit market has helped reduce borrowing costs of Indian companies as foreign loans are cheaper than those offered by domestic banks and financial institutions.
Net, net, fund flows from the international credit market reflect the high confidence of foreign investors in the Indian power sector.