Reliance Power - Sasan restructuring - More technical less material - Prabhudas Lilladher

Preface: Reliance Power's (RPower's) Sasan UMPP loan of Rs145bn has been restructured by the lenders. We believe that it is a technical factor which now takes into the account a realistic Commercial Operation Date (COD) referred to as the Date of Commencement of Commercial Operations (DCCO). The original DCCO of Sasan at initial bidding was from May 2013-April 2016. However, it was revised to December 2011-March 2013 as MOP wanted two units to come up in the 11th Plan itself. This condition was accepted by the company on the assurance of required assistance given for securing timely inputs and a revised PPA was signed which necessitated a change in loan documents too. On account of a delay in land acquisition (which allowed RPower to start land acquisition only in January 2011), COD of the 1st unit by December 2011 was not possible. Ultimately, COD of 1st Unit of Sasan took place in March 2013.

- More of a technical factor: Since the DCCO of Sasan is now shifted to March 2013 - June 2014, the same will also have to be incorporated in the loan documents. As per RBI, if any change occurs in DCCO, it will lead to a restructuring. Thus, this restructuring is not on account of any payment default but purely for technical adjustment. Also, out of the total Rs145bn domestic loan sanctioned till date for Sasan, Rs25bn has been used from domestic banks, Rs60bn from US and Chinese EXIM banks. The company is currently funding the construction activities from buyer's credit, which in future, will get replaced by non-domestic loans.

- Impact and Recommendation: As the domestic loan is on a floating rate, interest rate is raised from 14.5% to 14.7%. The interest outgo will have some impact; however, as the major chunk of the loan is to be financed from international agencies, the final average rate of interest will be lower around 12.5%. The moratorium ends on April 2014. Also, no penalties have been levied for a delay in DCCO. Thus, overall impact will not be huge on the project's financials. We have factored in the change in the interest rate which reduced our target price by 1.25%. Apart from this, the company has already applied for a change in overall tariff for factoring in changes taken place in some regulatory and forex aspects during the construction phase. We maintain 'Accumulate' on the stock.

Source : Equity Bulls

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