The Cabinet Committee on Privatisation (CCoP) is likely to approve the scheme of debt re-capitalization and refinancing of two RLNG-fired plants though local banks amounting to Rs 110 billion before sale of equity in its forthcoming meeting, well informed in Power Division told Business Recorder.
Both Haveli Bahadar Shah and Balloki Power plants, owned by National Power Park Management Company (Private) Limited (NPPMCL), were set up with Government of Pakistan’s (GoP) funding equity instead of the 70:30 debt-to-equity ratio benchmark allowed in Nepra’s tariff for NPPMCL’s power plants. Therefore, in order to align the capital structure with the tariff, 70% of project costs were to be based on long-term financing. As per allowed benchmark long-term financing requirement, including repayment/adjustment of GoP’s guaranteed loan, presently stands at Rs110 billion.
As part of the NPPMCL privatisation process, it was originally envisaged that excess funding from the GoP will be replaced within LIBOR + 4.5% (for foreign denominated financing) and KIBOR + 3.5% (for domestic currency denominated financing) as per the NEPRA (Benchmarks for tariff determination) Guidelines, 2018.
However, after getting into advanced stage of the NPPMCL privatisation process, Nepra confirmed that any refinancing to replace the excess GoP funding and to align capital structure of NPPMCL with Nepra’s determined tariff, has to be within the KIBOR + 1.8% benchmark. This benchmark was based on the GoP direct or guaranteed funding which is not comparable to commercial financing without sovereign recourse. Arrangement of long-term financing to return excess GoP equity/loan and to debt recapitalize NPPMCL within the limits of KIBOR +1.8% locked by NEPRA; therefore, has become a stumbling block in privatisation of the company.
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Chairman, Privatisation Commission/ Minister for Privatisation, Mohammedmian Soomro and other concerned authorities held first meeting with the representatives’ of local banks in July 2020 in the State Bank of Pakistan, Karachi to explore the possibility of local long-term financing within the limit fixed by Nepra. In July, the banks linked financing to the on-going negotiations with Independent Power Producers (IPPs) and showed concerns about the issue of circular debt and price ceiling of KIBOR + 1.8% determined by Nepra.
The sources said, banks had also raised objections on some laws of Privatisation Commission, which have now been altered as per their recommendations.
Last year, Cabinet Committee on Privatisation (CCoP) in its meeting on November 16, 2020, had also constituted a Committee, under the chairmanship of the then Advisor to the Prime Minister on Finance and Revenue, to resolve the issues hampering the privatisation of NPPMCL.
On clarification of Nepra in the meeting of Committee held on January 07, 2021 that rate for debt financing (KIBOR + 1.8%) cannot be revised; however, it was agreed that PC and Financial Advisory Consortium (FAC) would explore possibility of replacing GoP’s excess equity and loan through commercial borrowing/local debt financing within the limits of KIBOR + 1.8%. It was also recommended that in the event of commercial borrowing before privatisation, if the entire amount of excess equity is not arranged, the remaining portion may be adjusted as PDFL long-term loan.
PC and FAC; therefore, again held meetings with local banks wherein it was indicated that appetite for debt financing may increase after settlement of IPPs overdue receivables by the GoP. Now, after partial settlement of outstanding receivables of IPPs it is anticipated that appetite for power sector has improved. Therefore, FAC presented a scheme of commercial borrowing for NPPMCL to refund excess GoP equity/loan and release of GoP guarantee before the committee on July 15,2021 to meet the following: (i) align capital structure of NPPMCL with Nepra’s determined tariff, within Nepra’s determined benchmarks including pricing and tenure parameters; (ii)assist GoP in dis-investing excess funding and release of GoP guarantee, as part of NPPMCL privatisation process; (iii) progress on a subsequent equity tranche after successful completion of debt process because in case both debt process and equity tranche continue to remain combined, there could be further delay; (iv) meet strict timelines agreed with the International Monetary Fund (IMF); and (v) mitigate concerns of equity process participants on delay in resolution of sectoral issues and problems related to the power plants.
RLNG-fired plants: Govt decides to go for debt re-capitalisation, refinancing
After discussion, the proposal of debt recapitalization and refinancing was considered in the meeting of the committee and all concerned were directed to complete all necessary processes in this respect at the earliest. It was further directed that sale of equity be undertaken on fast track basis after completion of debt recapitalization.
Last month, Minister for Privatisation, Mohammedmian Soomro held another meeting with the representatives of local banks before finalization of proposal for the CCoP. The total amount is Rs110 billion which includes loans and a portion of equity. After thorough consultations it has been decided to change the transaction structure which implies that now the GoP has to arrange financing of Rs110 billion instead of the bidders to facilitate the investors.
According to sources, since multi-laterals are reluctant to participate in debt-recapitalization, the government decided to request local banks and DFIs to come forward for facilitating the transaction. “Banks have appetite to some extent if not entire amount of Rs110 billion,” the sources said, adding that as the CCoP clears the proposal, it will take around three months to finalise the funding arrangements.
The sources said PC has recommended debt re-capitalization and refinancing of NPPMCL from the local banks, for obtaining formal approval of CCoP as per following broad terms which remain subject to comments from the potential lenders: Expression of Interest (EoI) to be invited from scheduled banks and DFIs through an amount of Rs110 billion for a period up to 7 years (aligned with Nepra’s debt schedule) as per Nepra’s determined tariff maximum of KIBOR + 1.8 per cent. The standard security package including charge over assets and cash flows of NPPMCL will be without any recourse to the GoP. The sources maintained that funding of Rs110 billion be arranged through open bidding and if any bank offers above KIBOR + 1.8 per cent, the bid will be rejected. “The government has held the potential investors. As indicative offers are received from local banks, the investors will be requested to visit the plants,” the sources maintained.
