India Power and Infra Conglomerates look to China Development Bank for Survival

Indian Power and Infrastructure Companies like GMR, Lanco, GVK, Reliance Infrastructure have been making continued losses in the past couple of years and have been unable to reduce their massive debt burdens. These companies had expanded rapidly during the boom into power, construction, real estate, infrastructure like roads, ports and airports. However macroeconomic and governance problems coupled with their high leverage has put them into a tight spot right now. Lack of fuel for their power plants, delays in execution of projects, increasing receivables from financially distressed government companies, geopolitical risks have all combined such that some of the top companies like Lanco is being unable to pay salaries to its staff.

GVK another top infra conglomerate from AP has seen its profitable airport in Maldives being taken over by the government there. The coal mines that these companies bought in Indonesia and Australia for millions of dollars are facing increased taxes and duties. Burdened by high debt, these companies are looking at Chinese banks to help them survive. Chinese Government supports its companies through its massive state owned banks which lend money more on strategic merits than commercial ones. Vendor financing is the biggest selling advantage Chinese companies have, while selling to cash strapped customers. The big telecom firms like ZTE, Huawei have used Chinese loans to sell equipment to India’s telecom companies. Now power equipment firms in China are using the power of the Chinese banks to sell capital equipment to loss making Indian private electricity firms.

Lanco delays giving salaries

Lanco Infratech Ltd has been forced to delay salary payments to its employees after creditors refused to extend new loans to the debt-laden infrastructure builder battling cash-flow problems, two persons aware of the development said.Gurgaon-based Lanco Infratech has 16 operating group companies with a combined salary bill of around Rs.75 crore per month. The company, which has 6,800 employees, has been delaying salaries by nearly a month to around 3,000 employees at some of its group companies, the people said.

Looks to Chinese Bank for $2 billion Loan

India’s Lanco Infratech Ltd. Monday said it has signed a pact with China Development Bank to raise $2 billion in debt to fund power projects. China Development Bank will provide $600 million from its own funds and will help raise the rest from a syndicate of Chinese banks and financial institutions, Lanco said. It added that it will use the money to finance the construction of two power projects of 660 megawatt each being set up in India’s Uttar Pradesh state.

Meanwhile Reliance Power ties up with Chinese Ming Yang to build Wind Farms

China Ming Yang Wind Power Group Limited (Ming Yang) has announced that Guangdong Mingyang Wind Power Industry Group Limited (Guangdong Mingyang), a subsidiary of Ming Yang, has entered into a financing framework agreement with Reliance Power Limited and China Development Bank Corporation (CDB). Under the Framework Agreement, being the coordinating bank and lead potential lender, CDB will act as the lead arranger to coordinate the provision of financing facilities to Reliance Power to support future renewable energy projects. The amount, terms and conditions of the financing facilities will be subject to the potential lenders’ respective internal approval procedures and further assessment of the projects. On July 2, 2012, Ming Yang announced that it has signed a Memorandum of Understanding with Reliance Power to co-develop up to 2,500MW renewable energy projects in India within three years.