Orient Green Power IPO may face some strong headwinds

Electricity generation and profitability depends on climatic conditions, particularly wind conditions, which can vary dramatically across the seasons and between locations of the wind farms — the company has a limited history of operating and developing such farms

Chennai-based renewable energy power plants developer Orient Green Power Company Ltd (OGPCL) is hitting the market to raise Rs900 crore through a 100% book building issue. The issue size is 19.14 crore shares of the face value of Rs10 each. The shares are being offered in the price band of Rs47 to Rs55 per share. The shares are priced 4.7 times of face value on the lower side and 5.5 times on the higher side.

The IPO is set to open on 21 September 2010 and will close on 24 September 2010. The shares of the company will be listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The issue has an IPO grading of 4/5 (CRISIL), indicating that the fundamentals of the IPO are 'above average' relative to other listed equity securities in India. However, the grade is constrained by the poor financial health of state electricity boards, the company's main customers.

OGPCL proposes to use Rs60.75 crore from the net proceeds of the IPO to finance the construction and development of four biomass projects in Narasingpur (10MW), Amritsar (10 MW), Vellore (7.5MW), and Patiala (10MW). Besides, it will fund its subsidiary OGP Rajasthan and BWFPL for the construction and development of a biomass and a wind project at a cost of Rs530.20 crore and will fund its subsidiaries BWFPL, PSR Green and SNEL for repayment of loans taken from IndusInd Bank, and to prepay its existing debt availed from Yes Bank at Rs148.19 crore. 

The company generates renewable energy based power focused on developing, owning and operating a diversified portfolio of renewable energy power plants. It sells power from its wind energy projects to private power consumers seeking to supplement state power supplies for captive purposes pursuant to short-term poser purchase agreements (PPAs) in states where such sales are permitted. As of 31 July 2010, its total portfolio of operating projects included 213.03MW of aggregate installed capacity, which comprised 172.53MW of wind energy projects and 40.5MW of biomass projects. Its portfolio of committed and development projects included approximately 836.5MW of prospective capacity, which included an estimated 643MW of wind energy projects, 178.5MW of biomass projects and a 15MW small hydroelectric project.

OGPCL develops wind farms and is currently expanding its presence in Tamil Nadu and developing projects in other locations in India like Gujarat and Maharashtra and internationally, including in Sri Lanka, Croatia, the Czech Republic and Hungary.

The company is promoted by Shriram EPC Ltd (SEPC), Shriram EPC (Singapore) Pte Ltd (SEPC Singapore), and Orient Green Power Pte Ltd (OGPP), Singapore. OGPP and SEPC currently hold 94.74% and 0.14%, respectively, of Orient's share capital. SEPC Singapore is a wholly-owned subsidiary of SEPC and holds 37.70% of the equity share capital of OGPP.

The company reported a net loss of Rs12.24 crore for the year ended 31 March 2010 on a total income of Rs63.21 crore. It had a negative cash flow of Rs4.82 crore in the year ended 31 March 2009. Biomass energy production accounted for 69.23% of its revenue during the year ended 31 March 2010.

There are 32 litigations pertaining to civil, tax, criminal, court summons pending against the company's promoter firm Shriram EPC Ltd.

Electricity generation and profitability depends on climatic conditions, particularly wind conditions, which can vary dramatically across the seasons and between locations of the wind farms.  The company has a limited history of operating and developing wind farms and biomass power plants.

The book-running managers to the issue are Axis Bank Ltd, Goldman Sachs (India) Securities Pt Ltd, JM Financial Consultants Pvt Ltd and UBS Securities India Private Ltd.


Monday Closing Report: Watch out for a short correction

Adding to Friday's gains, the market continued its upmove today, with the Sensex scaling a fresh 32-month high. Brushing off the apprehensions ahead of the Federal Open Market Commission's monetary meeting announcement, due on Tuesday, the domestic market ended in the green for the second day in a row.

The market opened on a positive note despite some cautiousness as its Asian peers were mixed in early trade. Gaining strength from the positive economic indicators announced last week and institutional interest, it continued its steady upmove with support from the influential European bourses that opened in the green. The benchmarks finally ended the day with gains of over 1.5%.

The Sensex added 311.35 points (1.59%) to close at 19,906. The bellwether index scaled a high of 19,927 and a low of 19,445, intraday. The Nifty was just shy of the 5,900 mark, closing the session at 5,980, up 95.50 points (1.62%). The index swung between a high-low of 5,989 and 5.885, respectively.

The overall market breadth was good. Of the 30 Sensex stocks, 25 finished in the green while five declined. The Nifty ended with 44 gaining stocks versus six declining stocks. It was the day of the heavy-weights as the broader indices could not match the performance of the key benchmarks today. The BSE Mid-cap index gained 0.66% while the BSE Small-cap index surged 0.74%.

The top Sensex gainers were Reliance Communications (RCom) (up 5.14%), ITC (up 4.93%), Hero Honda (up 3.96%), Hindustan Unilever (HUL) (up 3.79%) and HDFC (up 3.33%). The losers on the index were Sterlite Industries (down 1.10%), NTPC (down 0.51%) and TCS (down 0.21%).

All sectoral indices ended in the positive zone today. The toppers were BSE Fast Moving Consumer Goods (FMCG) index (up 3.50%), BSE Realty (up 1.73%), BSE Auto (up 1.31%), BSE Metal (up 1.28%) and BSE Capital Goods (CG) (up 1.22%).

State-run Rural Electrification Corporation (REC) today said the Reserve Bank of India (RBI) has granted it the infrastructure finance company status which would allow the firm to lend more to power projects.

With the IFC status, REC can now take an additional lending exposure of up to 5% of its owned funds in case of a single borrower and up to 10% of its owned funds in case of a group of borrowers. The total permissible exposure would thus be 40% of owned funds in case of a group of borrowers.

The company also becomes eligible for issuance of infrastructure bonds and for raising funds up to $500 million (around Rs2,500 crore) through external commercial borrowing (ECB) in a year.

Markets in Asia ended mostly in the green on speculations that earnings optimism would protect the region's economy from any undue economic jitters. The US Federal Open Market Committee (FOMC) is expected to announce the outcome of its monetary policy meeting on Tuesday.

The Hang Seng was up 0.03%, KLSE Composite advanced 0.19%, Straits Times gained 0.15%, Seoul Composite was up 0.29% and Taiwan Weighted rose 0.35%.

On the other hand, the Shanghai Composite shed 0.38% and Jakarta Composite was down 0.40%. The Japanese market was shut for a local holiday.

The US markets closed flat with a positive bias on Friday on a weak consumer confidence report. The markets started on a positive note following strong earnings reports.  The indices gave up most of their gains after a Thomson Reuters/University of Michigan's preliminary September reading on the overall index on consumer sentiment came in at 66.6, down from 68.9 in August.

Consumer sentiment worsened in early September to its weakest level in more than a year, as distress over jobs and finances intensified among upper-income families. The Dow rose 13.02 (0.12%) at 10,608. The S&P 500 was up 0.93 points (0.08%) to 1,125. and the Nasdaq rose 12.36 points (0.54%) 2,315.

The United Stock Exchange of India (USE), a new bourse for currency derivatives, began operations today and witnessed good volumes in the first hour of trade.

The exchange commenced operations in the all four currency pairs allowed by the Securities and Exchange Board of India (SEBI) - dollar-rupee, euro-rupee, yen-rupee and pound-rupee.

USE is the third bourse offering currency trading in the country after the National Stock Exchange (NSE) and Multi Commodity Exchange (MCX).

Foreign institutional investors were net buyers of stocks worth Rs1,518 crore on Friday. Domestic institutional investors were net sellers of equities worth Rs747 crore on the same day.

Core Projects & Technologies (up 1.52%) has announced that it has acquired two companies in the US in the field of education - Technical Systems Integrators LLC (TSI), a Georgia-based education solutions company and New York-based Keenan & Keenan Group, an education consulting company.

The two companies have a combined turnover of $25 million and cater to the needs of students in 1,500 schools in the US.

State-run Rural Electrification Corporation (REC) (up 1.77%) today said the Reserve Bank of India (RBI) has granted it the infrastructure finance company (IFC) status which would allow the firm to lend more to power projects.
With the IFC status, REC can now take an additional lending exposure of up to 5% of its owned funds in case of a single borrower and up to 10% of its owned funds in case of a group of borrowers.

Steel Strips Wheels Ltd (SSWL) (up 6.44%) has informed the Bombay Stock Exchange (BSE) that the company has bagged repeat orders from leading suppliers based in Germany catering to the European after market. The first order is for around 5,000 wheels with a foreign exchange earning of nearly £55,000.
The company is optimistic about repeat business from the region.


Another turf war: PFRDA wants pension fund managers to provide annuity, not insurers

The pension regulator is mulling setting up annuity service providers outside the insurance sector, wants PFMs to provide annuities for its pension products rather than relying on insurance companies. Is this planting the seeds for another regulatory turf war?

In a move that will start another regulatory turf war, the Pension Fund Regulatory and Development Authority (PFRDA) wants annuity products to be sold by pension fund managers. Currently, they are exclusively sold by insurance companies. This is one of the many radical thoughts of PFRDA under the new chairman Yogesh Agarwal which will be debated by a committee set up under the chairmanship of the former chairman of the Securities and Exchange Board of India, GN Bajpai, to overhaul the stagnant New Pension System (NPS). If the PFRDA has its way, there would be a new turf war - this time between the insurance regulator and PFRDA over whether annuity is a pension product and should be regulated by the latter too. Of course, before PFRDA does step in to regulate annuities, it will have to get the required teeth. The PFRDA Act has still not been passed by Parliament.

Articulating PFRDA's view on annuity, in an interview with the newspaper Mint, Mr Agarwal said that that the regulator was in favour of having annuity products as distinct from what insurance companies are providing. "We consider ourselves as the regulator of the entire pension sector and in today's market, you see most products are hybrid products that can come under multiple regulators. ASPs (Annuity Service Providers) will work with the insurance regulator to see how best we can regulate them. But we would have ASPs outside the insurance sector also."

Essentially, PFRDA is trying not only to put the onus of selling its products on fund managers but also wants them to create and distribute annuity products for the benefit of pension customers. This means that the seven PFMs, namely, LIC Pension Fund Ltd, SBI Pension Funds Pvt Ltd, UTI Retirement Solutions Ltd, IDFC Pension Fund Management Co Ltd, ICICI Prudential Pension Funds Management Co Ltd, Kotak Mahindra Pension Fund Ltd and Reliance Capital Pension Fund Ltd would be peddling annuity products. Of these, only UTI and IDFC have no life insurance arm of their own; the rest have independent life insurance operations.

Mr Agarwal even suggested that insurance companies get out of annuity altogether. On being asked whether this would lead to a duplication of service, Mr Agarwal replied, "See, providing annuity is a feature of a pension product. So, at some stage, insurance companies will have to rethink. They have been doing it for 40-50 years and so you can't just tell them to stop. But, at the same time, when the investor takes a decision in due course, he will have a choice between insurance firms and PFMs on the basis of who gives better returns."

However, PFRDA seems to have missed a point or two in coming up with this idea. While the chairman claims that providing annuity is the feature of a pension product, he seems to have ignored the provisions of the Insurance Act, 1938, Section 2(11), which outlines annuity as the business of a life insurance company. Gorakhnath Agarwal, chief actuary, Future Generali India Life Insurance Co Ltd explained to Moneylife, "As per the definition given under (the) Insurance Act, annuity products are categorised under life insurance business and come under the purview of IRDA. If PFRDA wants to set up separate annuity providers, the government may have to make appropriate changes to the Act." This means that the PFRDA may inadvertently set off another regulatory turf war in the country in case it pushes the idea and IRDA has something else to say abut it. As of now, it is only a thought and so may not have sounded alarm bells at the insurance regulator's offices. Even internationally, annuity products remain the domain of life insurance companies and other entities are not allowed to sell annuity products.

Mr Agarwal's idea behind the exercise seems to be offering a wider choice for pension customers, who can pick and choose their own annuity providers on the basis of who gives better returns. PFRDA's rationale is that a pension product is much more than the annuity product offered by insurance companies and that providing an annuity is the feature of a pension product. So, it wants the PFMs for its pension products to offer annuities to the customer. However, this move will likely create more confusion in the minds of the customers, who are already clueless about the modalities of the NPS, apart from another round of turf wars, underlying therefore the need to have a super regulator.

PFRDA has been thinking of ways to change the way pension systems operate in the country. First came the call for having pension fund managers (PFMs) push the struggling New Pension System (NPS) instead of the point of presence service providers (PoP-SPs). As we pointed out, however, (see here: this makes no sense especially since fund companies are not able to sell even a tried and tested product like equity mutual funds.



bhanu pratap

6 years ago

with the increasing number of workforce joining private sector, the nps is a type of social security for this workforce and its not that the fund managers are not able to sell the nps, but its the low visibility of the product which is making it difficult to sell. As for annuity products it is worthwhile that annuity is also sold by fund managers as a separate entity because under nps there is a compulsion of selling 40 percent of the accumulated fund to annuity provider. So in that case Annuity products too need to be efficiently managed and marketed which may not be the case presently.


7 years ago

If the proposed move is designed to give customers a wider choice, I wholeheartedly welcome it. The attendant possibility of a turf war should be mitigated by adequate checks and balances at the design stage itself. I support this because, five years ago when, pvt superannuation/ pension funds were, and are still, compelled to go to insurance companies for buying annuities, under the Income Tax Act, LIC was the only recourse. I strenuously sought exemption from this arbitrary rule, because we , as a Trust Fund could manage to get better returns than LIC, even by investing corpus only in approved securities and give benefits to members as per our laid down benefit-defined superannuation scheme. Going to LIC meant taking cuts in benefits as their premiums were very high. After much lobbying with Finance Ministry mandarins, with the IRDA having washed its hands off the issue, LIC dropped its premiums and other insurers were allowed to compete in this segment. Since then, there is a choice but having more options would certainly benefit customers.

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