Reliance Power on Friday filed the red herring prospectus (RHP) with the Registrar of Companies, Maharshtra, Mumbai (ROC), for its proposed initial public offering (IPO). Reliance Power has fixed the price band for the IPO at Rs 405 - 450 per share.
Anil Ambani, Chairman of Reliance ADAG told CNBC-TV18 that February is going to be a great month as they plan to list Reliance Power. He added that first project will go on stream in 2009 and cash flows will start post that. He also said that Reliance power has around 28,000 MW projects in hand.
Excerpts from the exclusive interview with Anil Ambani:
Q: Only in terms of the issue proceeds that will be used for the power project, in the DRHP you had written about Rs 6,000 crore will be used for the six power projects, and in the RHP it was increased to Rs 8,000 crore, why did you have to increase it?
A: At the draft stage as you are familiar, there were no price indications, so people did their own calculations. The final proceeds are in the Rs 405 to Rs 450 price range.
Q: The total six projects that you have mentioned in your prospectus, the cost is about Rs 31,000 crore and the issue proceeds as you said is like Rs 8,000 crore or a little more. Rs 23,000 would be possibly debt. Is all of it tied-up? If it is, what is the approximate cost?
A: Yes, I think that what we have is the lines of credit approval from the various axiom banks of the world from where we are sourcing equipment on a global basis. We have a large number of Indian and foreign banks who have extended credit facilities to us, and we believe that there is absolutely no challenge in achieving financial closure, because we have gone on a competitive, tariff based bidding, and if you take the Sasan UMPP, it is backed up with state government guarantees, letters of credit, escrow.
So, it is probably a very firm basis of security for the lenders. Reliance Energy brings itself both the Mumbai and the Delhi distribution where we are dependent on close to 6 million customers. And it is unlikely that all 6 million people are going to default on the same day. So, it is a whole package of risk management that we have put together.
Q: But when do you think you will be cash positive in Reliance Power? When will you start generating cash?
A: We are talking about the first project to go onstream in 2009 and cash flows will start post that.
Q: 40% of the projects require gas. You should have some idea of how your agreement is going because the court had given you a deadline of February to come to some negotiation. Do you think you can update us on whether that gap is in place, and the agreement is in place by then?
A: As I said in the media conference that directionally speaking, it is now established that there is more gas both for India as a country and for Reliance Industries. That is at one level.
Two is, all gas producers really require strong credit worthy customers who are ready to pay for the gas, take large quantities of gas and convert it into world class power assets, which is what Reliance Power is about to get into. I am quite confident that we will have a win-win solution coming out of this.
Q: So February could be a great month in terms of this agreement?
A: We don’t know, February is going to be a great month as we plan to list Reliance Power.
Q: Coming to those six projects that this IPO will fund, for the balance 7 projects the cost comes to something like Rs 25,000-95,000 crore. Assuming again a 20% equity you have to be bringing in close to Rs 15,000-20,000 crore by way of equity, would we see another Reliance Power follow on Public issue?
A: We do not see any reason, as we go into this today to think about fund raising for the future. But as you will appreciate that we are just selling - rounding off a number of close to 10% of the company. 90% still belongs to the promoters. So, we have enough firepower to fund our future growth as and when it may be necessary into the future. But there is nothing that is in the visibility arena right now for me to say, this is going to happen in the next quarter. It doesn’t look like that.
Q: Finance is not an issue, like you have clarified, but execution risks for power projects stares in the face for every power company that has come, Enron-Dabhol, example can go on and on?
A: I personally think that if you look at the Enron-Dabhol issue, it is not an execution issue. It is an issue of the price of power and the types of agreements. It is a completely different example and I think that as more and more private sector gets involved and you look at the string of announcements after Reliance Power that the private sector is talking about investing in the power sector, that enthuses me a lot, because there will be far more talent that will be available. People will be more conscious.
And as I said in my comments that there was Roti, Kapda aur Makaan, now there is Roti, Kapda, Makaan and Mobile, and now there is going to be Power. I don’t think 1 billion people in India can do without power. And high quality, low cost, reliable power is what I think India needs.
Q: What percentage of your power is competitive bidding, because only there you have unlimited profit potential?
A: I think that the way to look at it is a very small proportion as 28,000 mw is based on a cost plus regime.
Q: Now that you have taken out all the major lucrative, competitive power projects into Reliance Power, what is left in Reliance Energy? Wouldn’t it become a mere holding company and therefore in future get holding company discounting?
A: I think that when you look at Reliance Energy, it was trading at under Rs 500 and it has been the best performing Sensex stock of 2007. The writing is on the wall. Investors usually know more than you and me combined, and the future potential of Reliance Energy is outstanding.
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