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NTPC, PowerGrid financial recast mooted

Balaji C. Mouli

NEW DELHI, March 7

SBI Capital Markets Ltd has proposed financial restructuring of the State-owned National Thermal Power Corporation (NTPC) and PowerGrid Corporation of India Ltd prior to a planned sale of the companies' equity in two tranches.

It mooted a 50 per cent reduction in the NTPC's equity to improve the market valuation of the company. The consultant, appointed in November last to study the Central power sector undertakings, proposed conversion of 50 per cent of the company's equity i nto six per cent preference shares.

This would double the earnings per share (EPS) besides raising the book value by around 60 per cent, according to SBI Caps.

Following the restructuring, the consultant suggested a 5 per cent equity sale in 2002-03 and another 10 per cent equity sale in 2006-07. SBI Caps has estimated that the divestment would raise Rs. 4,000 crores.

At present, NTPC has a book value of Rs. 2,612 and an EPS of Rs. 365.

In the case of PGCIL, the consultant pointed out that equity conversion would result in the EPS rising from Rs. 154 to Rs. 450 (post-conversion) and the book value from Rs. 1,860 to Rs. 4,000.

SBI Caps mooted a 10 per cent equity sale in 2002-03 and another 10 per cent in 2007-08. The resultant disinvestment would net around Rs. 1,500 crores (at book value).

With regard to the National Hydroelectric Power Corporation (NHPC), the consultant suggested a restructuring involving conversion of Rs. 549 Government loan back-ended redeemable preference shares and rollover of Rs. 1,550 crores bonds for a few years.

Under a `business as usual (BAU)' scenario, SBI caps estimated a capacity addition of 28,274 MW during the Ninth, Tenth and Eleventh Plan periods as against 40,610 MW projected by the CPSUs in their corporate plan and 50,390 MW by the Central Electricit y Authority (CEA).

The restructuring and equity dilution prescriptions have been mooted to set up additional capacity above the BAU scenario to meet requirements by 2012. The measures, however, will bridge the resource gap partly.

SBI Caps estimated that the NTPC restructuring and equity dilution would result in an addition of another 3,900 MW thermal capacity, short of the 5,800 MW deficit in thermal capacity in 2012.

The NHPC restructuring would not be able to raise adequate resources to meet the hydel capacity requirement. Hence, the consultant suggested a 51 per cent sale in Nathpa Jhakri Hydroelectric Corporation (NJPC) once the 1,500-MW project is set up. The div estment realisation has been pegged at Rs. 4,000 crores.

To augment resources, a one per cent Central sales tax on electric equipment is proposed. This would realise about Rs. 8,500 crores by 2012. Both the measures would help fund 4,000-MW capacity addition, well short of the required hydel capacity addition of 42,000 MW by 2012.

Hence, the consultant suggested divestment in NTPC and PGCIL around 2006-07 to a strategic partner to meet the hydel capacity addition target.

The consultant has categorically ruled out merger or buy-out of NHPC by NTPC since there are no synergies between the two companies.

>SBI Caps prescription

W Restructuring of NHPC, NTPC, PGCIL.

W Conversion of 50 pc equity into preference shares in PGCIL, NTPC.

a. 15% equity sale in NTPC to yield Rs. 4,000 crores

b. 20% equity sale in PGCIL to yield Rs. 1,500 crores

c. Centre's loan converted to preference shares, bonds rolled over in NHPC.

W Reject merger, buy out of NHPC by NTPC.

W 1% Central excise tax on electric goods to fund hydel capacity.

W Strategic sale in NTPC, PGCIL on later date to fund hydel capacity.