IPO Funds Will Help Co Raise Rs 40,000-Crore Debt

Reliance Energy’s decision to raise equity finance for the upcoming ultra mega and other power projects through the public route is well-timed and may be a good business proposition. The ultra mega project, requiring a total investment of around Rs 18,000 crore, is one of the two large projects being undertaken, involving equity finance of Rs 3,600 crore at 80:20 debt-equity ratio.

The recent government decision to allow the developer to increase the capacity of these plants beyond 4,000 MW and sell excess power at market rate is an added incentive.

The company is expected to raise close to Rs 10,000 crore through the IPO. At the prevailing debt-equity ratio for power projects, the company can mobilise up to Rs 40,000 crore of debt on the basis of this equity, which would be enough for around 12,000 MW of power projects. Under the assumption of 80% capacity utilisation and Rs 2.5 per unit of power, this can generate revenue of around Rs 20,000 crore.

Another interesting feature of the proposed IPO is its striking similarity with the public issue of Reliance Petroleum last year, where money was raised on the strength of a new project. However, while the promoter had the experience of developing a similar project then, for Reliance Power, the proposed plant is going to be the first project of this size. On the positive side, the government may make the environment more supportive for power projects given the wide supply-demand gap.