REC lends Rs. 38,000-mn to TNEB

Chennai Power sector lender Rural Electrification Corporation (REC), which is entering the capital market with an initial public offer of 156.1 million equity shares, is expected to sanction funds for five power projects, a power plant modernisation scheme and transmission and distribution (T&D) infrastructure programmes of the Tamil Nadu Electricity Board (TNEB) over the next few months.

The company has already funded the 1,000Mw (2x500 Mw) coal-based power project being developed jointly by National Thermal Power Corporation and TNEB on an estimated cost of Rs 5,400 crore. REC has financed the entire debt component of Rs 3,800 crore. The power plant is expected to be operational by 2010.

As part of the MoU signed last year with TNEB to provide financial assistance to the tune of Rs 16,000 crore for augmenting TNEB's power generation capacity by 3,000 Mw and its related T&D infrastructure over the next five years, two projects – 500 Mw Mettur thermal power project and 4x125 (500 Mw) Kundah pumped storage hydro-electric power project – will receive funding assistance from REC by the end of current fiscal.

REC has received applications from TNEB seeking funding assistance for three more projects that include 500 Mw Tuticorin thermal power project, 500 Mw Ennore thermal power project and conversion of existing gas turbine power house into combined cycle gas turbine system project at Basin Bridge, Chennai.

The company has also received application from TNEB to provide financial assitance for a 1,600 Mw supercritical thermal power project to be set up jointly by BHEL and TNEB at Udangudi in Tuticorin district on an estimated cost of Rs 8,500 crore. The funds for all these projects are expected to be sanctioned over the next few months.

REC is tapping the capital market to raise funds for strengthening its capital base enabling the company to improve borrowing capacity in order to support the future growth in its assets.

The issue opens on February 19 and closes February 22. It has fixed a price band of Rs 90-105 per share. The issue will constitute 18.81 per cent of the fully diluted post-issue capital of REC.

On the recent market turmoil, HD Khunteta, director (finance), REC, said the company's fundamentals were strong with good margins and low NPAs. 'With reasonable pricing, we expect that there will be a positive trend,' he added.

IL&FS Investmart Securities, ICICI Securities and SBI Capital Markets are the book running lead managers to the issue.