After the big let-down for investors by Anil Ambani's Reliance Power, a little known company, KSK Energy Ventures Ltd, with negligible experience in the power sector is planning to raise around Rs 2,000 crore through an IPO. When one of the largest industrial houses in the country could not reward its IPO subscribers with good returns post-listing, it has to be seen how this issue fares on listing.
The very first risk factor listed in the DRHP filed by KSK with Sebi says, "We have limited experience in developing and operating large power projects and managing the high level of growth we project for our business".
As against the 144 mega watt (mw) of power capacities that are operational currently, KSK has ambitious plans to set up over 9,000 mw of generation capacities over the next four years. "Of this amount, we have not entered into power purchasing agreements (PPAs) for approximately 8,500 mw of power," says the prospectus.
The total estimated project cost in eight of its under-development and planned power projects is Rs 34,900 crore. KSK will need to raise Rs 26,200 crore in debt and Rs 8,700 crore as equity to finance these projects. It is surprising how a company with last reported sales of Rs 93 crore and an estimated networth of around Rs 230 crore would raise such huge funds.
KSK's promoter director, S Kishore, told DNA Money that they are confident of raising around Rs 2,400 crore through the IPO and will be able to complete all the projects listed out in the prospectus on schedule.
Interestingly, a number of sharebrokers in the IPO savvy markets of Gujarat are not even aware of the existence of this company or its public issue plan.
"The prospectus says that the company is doubtful over raising rest of the funds for planned power projects, which is a critical point as far as investors are concerned," said Yamal Vyas, head of research at Ahmedabad-headquartered Khandwala Integrated Financial Services Ltd. He added that the company's high indebtness is of concern in a scenario of rising interest rates.
"The company would require around Rs 36,000 crore to develop 9,000 mw of power generation capacity and till now it has raised only around Rs 800 crore from private placement and through listing on the Alternative Investment Market on the London Stock Exchange," said Vyas.
"SEBI should not approve or allow public issues of companies which come out with projects with no fundamentals to back," says Nilesh Kotak, MD of Dhanvarsha Fincap Pvt Ltd. He added that Sebi should make it mandatory for every company to give peer comparison in vernacular and national level newspapers, which would give a clear idea to investors as to the valuations of the company.
Hyderabad-based KSK Energy Ventures Ltd (KSKEV), a fully-owned subsidiary of Mauritius-based KSK Energy Ltd has filed a draft-red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi).
The company wants to tap the capital market for its 1,800 mw power project at Chhattisgarh and 130 mw hydro-electric power projects at Arunachal Pradesh, both of which are at development stage and expected to be commissioned by fiscal 2012.
On the financial side, the risk is its current debt, which is on floating basis making it highly susceptible to high interest rates. On top of it, the company intends to raise around 70% of the funds through debt, which will make it highly leveraged.
Though the company has entered into long-term fuel supply agreements with private companies, this is without securing the fuel supply for its power projects, which would not only limit its upside as far as pricing is concerned, but also make it vulnerable to rising fuel supply cost.
The very first risk factor listed in the DRHP filed by KSK with Sebi says, "We have limited experience in developing and operating large power projects and managing the high level of growth we project for our business".
As against the 144 mega watt (mw) of power capacities that are operational currently, KSK has ambitious plans to set up over 9,000 mw of generation capacities over the next four years. "Of this amount, we have not entered into power purchasing agreements (PPAs) for approximately 8,500 mw of power," says the prospectus.
The total estimated project cost in eight of its under-development and planned power projects is Rs 34,900 crore. KSK will need to raise Rs 26,200 crore in debt and Rs 8,700 crore as equity to finance these projects. It is surprising how a company with last reported sales of Rs 93 crore and an estimated networth of around Rs 230 crore would raise such huge funds.
KSK's promoter director, S Kishore, told DNA Money that they are confident of raising around Rs 2,400 crore through the IPO and will be able to complete all the projects listed out in the prospectus on schedule.
Interestingly, a number of sharebrokers in the IPO savvy markets of Gujarat are not even aware of the existence of this company or its public issue plan.
"The prospectus says that the company is doubtful over raising rest of the funds for planned power projects, which is a critical point as far as investors are concerned," said Yamal Vyas, head of research at Ahmedabad-headquartered Khandwala Integrated Financial Services Ltd. He added that the company's high indebtness is of concern in a scenario of rising interest rates.
"The company would require around Rs 36,000 crore to develop 9,000 mw of power generation capacity and till now it has raised only around Rs 800 crore from private placement and through listing on the Alternative Investment Market on the London Stock Exchange," said Vyas.
"SEBI should not approve or allow public issues of companies which come out with projects with no fundamentals to back," says Nilesh Kotak, MD of Dhanvarsha Fincap Pvt Ltd. He added that Sebi should make it mandatory for every company to give peer comparison in vernacular and national level newspapers, which would give a clear idea to investors as to the valuations of the company.
Hyderabad-based KSK Energy Ventures Ltd (KSKEV), a fully-owned subsidiary of Mauritius-based KSK Energy Ltd has filed a draft-red herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi).
The company wants to tap the capital market for its 1,800 mw power project at Chhattisgarh and 130 mw hydro-electric power projects at Arunachal Pradesh, both of which are at development stage and expected to be commissioned by fiscal 2012.
On the financial side, the risk is its current debt, which is on floating basis making it highly susceptible to high interest rates. On top of it, the company intends to raise around 70% of the funds through debt, which will make it highly leveraged.
Though the company has entered into long-term fuel supply agreements with private companies, this is without securing the fuel supply for its power projects, which would not only limit its upside as far as pricing is concerned, but also make it vulnerable to rising fuel supply cost.
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