The financial closure of Reliance Power's Sasan project could be a precursor of things to come Last fortnight, Reliance Power Limited (rpl), an Anil Dhirubhai Ambani Group (adag) company which is implementing power projects with aggregate capacity of over 32,200 mw, announced the financial closure of Sasan Power Ltd (spl), one of the three ultra mega power projects (umpp) that it bagged, based on competitive bidding. spl is putting up a 3,960 mw integrated pit head coal-based power project and will supply power at a price that's the lowest in India. It will sell power to 14 utilities in seven states -MP, Punjab, Haryana, UP, New Delhi, Rajasthan and Uttarakhand - at a price of Rsl. 196 per unit. The cost of the project is estimated at Rsl9,400 crore and is being financed in the ratio of 75:25 (debt to equity), against the industry norm of 70:30. While sbi is the lead domestic lender for the project, other large domestic banks and financial institutions like iifcl (India and UK), Power Finance Corp (pfc), Rural Electrification Corp, Punjab National Bank, lic, Axis Bank and idbi Bank form part of the consortium. The company has tied up Rsl4,500 crore worth of loans to finance the project. "This is the largest debt financing from domestic banks and institutions for any project across any industry in the country. And it comes at a time when funds are tight in both global and domestic financial markets due to the slowdown, with most large companies deferring or calling off investment plans," says J.P. Cha-lasani, ceo, rpl, who for the past 21 months (after the letter of intent was signed on 1 August 2007), has looked at various avenues to raise money. At one stage (in June 2008), Chalasani, sitting with the rbi approval in hand, also contemplated raising $2 billion via external commercial borrowings (fobs), but was forced to change track mid-way, due to the global. "Having tied up a debt commitment with a consortium of over a dozen banks and fis, achieving financial closure marks a key milestone in the development timeline of the power project, given the magnitude of the project and recent turmoil in credit markets. The financial closure for Sasan umpp gives credence to the economic viability of the project, given its competitively-bid tariff," says Aman Batra, analyst, Kotak Institutional Equities, in a recent report. Although the company has tied up the loans with domestic borrowers, it still has the flexibility to raise forex loans. "We can substitute as and when we raise without any pre-payment penalty. So, we have not lost out on the flexibility of optimising the cost of debt," says Chalasani. "The refinancing of the project debt with forex debt (which is likely to come at a lower interest rate) and utilisation of surplus coal for the Chi-trangi project will improve project returns," feels Batra. Creating a benchmark "rpl had 100 per cent equity for the project in place, which gave comfort to lenders in financing a large-sized project like Sasan. Lenders are comfortable funding projects where the equity is in place," says Satnam Singh, cmd, pfc, the nodal agency for implementation of umpps that has sanctioned Rsl,770 crore for this project. "In Sasan, for the first time, an integrated power project has been evaluated in the country, as earlier projects were funded based on fuel supply linkage. Here, financiers had to consider the analysis of the mines. Also, there is no recourse to promoters," says Madanagopal, analyst (power) at Centrum Broking. "This funding model has created a benchmark, and that too, for an aggressively bid project. The large power projects in the pipeline could soon reach financial closure. Funding will not be the key reason behind delays," he adds. India has an acute shortage of power. The government wants to provide power to all by 2012. To reach this goal, India will require an additional 100,000 mw of power, umpps can now get on the fast track, which will fill this gap. Of the four umpps awarded so far, Tata Power-promoted Mundhra and Reliance's Sasan are the only two projects to have achieved financial closure. Unlike Mundhra, the loans for Sasan are being raised without a corporate guarantee. Post Sasan, for the adag group, which has also bagged contracts to develop umpps in Krishnapatnam (Andhra Pradesh) and Tilaiya (Jharkhand), fund-raising may not be an uphill task.