Lanco plans to quadruple power generation

• 13 years ago (2011-05-17)
• Junior Isles

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Lanco Infratech Ltd., an Indian electricity producer controlled by billionaire L. Madhusudhan Rao, plans to borrow about $5.6 billion to quadruple power generation over the next four years.

The company aims to raise as much as $2.2 billion of debt overseas and will borrow the remainder from local banks in the next 15 months, Chairman Rao said. Lanco will spend $1.4 billion of its own cash as it builds plants to generate an additional 6000 MW by March 2015, he said.

Many Indian power developers, such as Reliance Power Ltd., are expanding generation capacities as the nation’s accelerating economic growth feeds demand for more electricity. Prime Minister Manmohan Singh aims to add 120 000 MW of power by 2017 to reduce blackouts and plug the current deficit of 10.5 per cent during peak hours that has threatened to slow development.

“The growth rate is going to be there,” Rao said, “What we are trying to create today is a small portion of the opportunity we have in the future.”

Lanco, which also has a construction business, plans to increase total power generation capacity to more than 15 000 MW by 2015, he said. The company currently produces 3300 MW and is building plants to reach 9300 MW by December 2013, Rao said. Lanco plans to spend $7 billion on the additional capacity.

India’s central bank this month raised key interest rates for a ninth time since March 2010, prompting Goldman Sachs Group Inc. to forecast reduced growth from April in Asia’s third-biggest economy.

The cost of raising rupee funds has become more expensive compared with dollar-denominated debt borrowed overseas. Consequently, the company will consider borrowing from Chinese lenders and the U.S. Export-Import Bank, Rao said.

Lanco had a debt of 83.2 billion rupees ($1.8 billion), according to data from Bloomberg, while its profit has more than doubled in three years.

The company will be adding power generation capacity every quarter that will generate cash for its expansion, Rao said.

“Cash flows from the power portfolio will go up and so also revenue from engineering, procurement and construction,” said Rao. “And those cash flows are more than enough to fund our growth.”

Rao has $2.3 billion of assets and is India’s 29th richest person, according to Forbes magazine.