Lanco Infratech hopeful, looks to gain from power assets auction

HYDERABAD: Cash-strapped infrastructure firm Lanco Infratech says the Supreme Court’s decision last week quashing allotment of 214 captive coal blocks will help the company seek better valuations for the power assets it has put on the block.
Its optimism stems from hopes that the government will give preference to power firms in the re-auction, and it will stand to benefit from this more as its power projects are surrounded by 'good coal blocks' that will now be re-auctioned.

“A large number of prospective buyers are approaching us to buy our power assets like Amarkantak (in Chhattisgarh) and Babandh (in Odisha), which are surrounded by good coal blocks that were cancelled by the Supreme Court, which will be re-auctioned by the government,” L Madhusudhan Rao, executive chairman at Lanco Infratech, told ET. “Further, we also have sufficient land for expansion of power projects at these sites, making them more attractive for the prospective buyers.” Lanco is selling some of its power assets to repay debt.

The company has also been affected by the apex court ruling as two of the three coal blocks it was involved in have been cancelled. The company is looking at selling at least 3,000 MW of power assets in the short term. It aims at raising Rs 20,000 crore, which will give it Rs 5,000 crore of cash and help retire Rs 15,000 crore of debt.

Like many other Indian infrastructure companies, Lanco borrowed heavily to finance rapid expansion but ran into trouble with the economy slowing down and power projects getting stalled for want of fuel. The company, which now has some Rs 48,000 crore of debt on its books, including non-fund support from lenders, is in the process of sealing a corporate debt restructuring deal with its lenders.

Of the three coal blocks that Lanco was involved with, the Supreme Court cancelled two — MahaTamil Collieries’ mine in Chhattisgarh and Rampia mines in Odisha.

Lanco began works for mining at MahaTamil Collieries’ coal block and developing an integrated power plant of around 4,000 MW. It has so far invested more than Rs 200 crore on this coal asset and is exploring means to recover the amount. On Rampia and dip side of Rampia mines, Lanco has spent about Rs 4 crore. Rao said he expects power developers with operational and under construction projects to get a better chance when the government re-auctions the de-allocated coal blocks after April 2015.

“Technically, in light of the transparency model, we should be the most qualified people to bid for coal blocks and get them. With so much of capital exposed by the lenders to our projects, we should get the lenders’ support as well in the re-auctioning process,” he said. Kameswara Rao, leader, energy, utilities and mining, at PricewaterhouseCooper, agrees that genuine incumbents will enjoy advantages in re-auction of coal blocks, but says this will not be enough. “The economics will favour the incumbents but it will not be sufficient,” he said.

“In addition, they should be granted the right of first refusal in recognition of risks taken to develop the project facility and a fair compensation should be offered to them out of auction proceeds to cover the investments incurred,” he added.

An infrastructure analyst with a foreign brokerage, who did not wish to be named, was sceptical on the immediate interest of foreign investors in the Indian assets. “From the policy framework perspective, the Supreme Court’s decision is being perceived as another deterrent, coming a few years after the government’s decision on retrospective taxation. These episodes raise serious concerns on Indian policy mechanisms.”