Tata Power is expected to announce this week the financial closure of its 4,000 mw Mundra power project, which is the largest ever greenfield infrastructure project by Corporate India and involves tying up around $4.2 billion (Rs 17,000 crore) funds. A financial closure involves tying up of both debt and equity funds and typically equals the entire project cost. Significantly, it indicates that banks are ready to fund the project.

According to banking sources, the largest financial closure to date is that for Reliance Industries’ KG Basin gas pipeline project at a cost of $3.5 billion. Even in the controversial Dabhol project, which involved a host of foreign and domestic banks, the funds tie-up was to the tune of $2 billion.

After announcing the financial closure, sources said the draw-down of funds may begin once all necessary conditions for the project are in place (these typically include statutory clearances). The Mundra project in Gujarat — named Coastal Gujarat Pvt Ltd — is the first of India’s ultra mega power projects (UMPPs). Tata Power won the bid for the project after quoting a tariff of Rs 2.26/ unit and is financing it on a debt equity ratio of 75:25.

Financed on a totally non-recourse basis (the viability of the venture is totally dependent on revenue flows), the debt component of the Mundra project is $3.2 billion and the equity component (to be put in by project promoters Tata Power) is estimated to be around $ 1 billion.

While the list of domestic banks to fund around $800 million of the debt component is being finalised, the Mundra project would have a substantial portion of forex debt component. Banking sources said that the Reserve Bank of India (RBI) has already given clearance for the forex part of the debt and that the letter of the credit for the project has been opened. More than 40 per cent of the total debt component ($1.4 billion) would be in the form of forex loans raised from three banks —- IFC, Asian Development Bank and the Korean Export Import Bank (K EXIM) sources said.

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