Partner Channels: Bill Pay | Health | IT Education | Jobs | Travel
August 9, 2001
|
|
|
|
|
|
||
|
Channels: Astrology | Broadband | Contests | E-cards | Money | Movies | Romance | Search | Wedding | Women Partner Channels: Bill Pay | Health | IT Education | Jobs | Travel |
||
|
|
||
|
Home >
Money > Business Headlines > Report August 9, 2001 |
Feedback
|
|
|
Enron set to lose heavily if sells DPC stake at costP Vaidyanathan Iyer & Santosh Tiwary Enron Corp, which has a 65 per cent stake in the $1 billion equity of Dabhol Power Company, is likely to take a big hit on its return on equity if it sells the stake at cost to the government. Cost-plus power projects like Dabhol are assured of a 16 per cent RoE. Considering the $650 million capital being infused by Enron Corp in DPC since 1996, the annual 16 per cent return works to $97.5 million. If the Houston-based energy major exits midway, it could stand to lose heavily since the 1,444 mega watt second phase of the project is not yet operational. Given the fact that the second phase of the project was nearing completion before the current stalemate, it is assumed that Enron has invested its entire equity portion of $650 million. DPC executives, when contacted by Business Standard, were tightlipped about the extent of equity investment made by Enron till date. Following Enron Corp chairman Kenneth Lay's announcement recently about Enron's willingness to sell its stake in DPC to the government or the lenders, K Wade Cline, chief executive, Enron India, too had told Business Standard on Wednesday that DPC was ready to sell the foreign stake at cost and also to accept payment in installments. Maharashtra State Electricity Board with 15 per cent stake and Bechtel Enterprises and General Electric Company with 10 per cent stake each, are the other three equity partners in DPC. The project has a 70:30 debt-equity ratio. Any foreign investor, an equity analyst with an MNC fund said, expected a return, which covered the country risk and the risk premium on equity in addition to the risk free rate of return. While the risk free rate of return in India is about 10 per cent, the total return on equity expected by investors is in the region of 18 per cent to 22 per cent. "For example, a top Indian corporate had recently said that it would not invest in projects which had a less than 20 per cent rate of return," he said. He, however, added the required rate of return depended more on the cost of capital of the company. Enron had signed the MoU for setting up the Dabhol project with Maharashtra in June 1992 with the FIPB approval for 2,550 mega watt coming through in January 1993. Powered by YOU MAY ALSO WANT TO READ:
|
||||
