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Dabhol’s Indian lenders file suit to protect securities

BS Bureau

In a dramatic development, ICICI, Industrial Development Bank of India, IFCI and State Bank of India on Tuesday filed a suit in the Bombay high court to protect and preserve their securities in the controversial $3 billion Dabhol Power Company.

The suit will come up for hearing on Wednesday. Harish Salve, solicitor general of India, is representing the Indian banks and financial institutions in the case.

Confirming the development, an institutional source said the filing of the suit does not amount to an enforcement action. But they want immediate resumption of work on phase I of the 2,184-mw power project which has been mothballed. This will ensure cash flow and help promoters pay up the lenders’ dues.

The domestic institutions are also insisting on maintenance of status quo. Effectively, the move may stall the DPC plan of serving the final termination notice to the Maharashtra State Electricity Board. The deadline for DPC to serve the FTN expires on November 19.

The four respondents to this suit are DPC, MSEB, the government of India and the government of Maharashtra. “We want all the involved parties to fall in line and create an environment for a solution to the problem. DPC should not stop the completion of phase II of the project and at the same time, MSEB must lift power,” said a senior banker.

MSEB chairman Vinay Bansal was not available for comment. The total exposure (including guarantees) of the Indian banks and financial institutions is to the tune of Rs 61 billion, roughly 70 per cent of the debt component of the project which is built on a debt:equity ratio of 70:30.

IDBI has the maximum exposure to DPC (Rs 23 billion), followed by SBI (Rs 18 billion) and ICICI (Rs 18 billion). IFCI and Canara Bank account for the balance of the debt.

Both DPC and MSEB as well as the foreign lenders to the project were taken aback by this development. “This could have been avoided ahead of the November 8-9 Singapore meeting where the lenders will take a close look at the bids of the Tatas and BSES for acquiring the DPC stake,” said an offshore lender.

The overseas lenders have a combined exposure of about $1 billion in the $3 billion power project in Maharashtra. The foreign lenders include Bank of America, Citibank, Credit Suisse First Boston, Japanese Bank for International Cooperation and ANZ Investment Bank.

DPC on Monday served a notice of asset transfer on the MSEB- a precursor to issuing a FTN to the board. It also formally kicked off the process of valuation of DPC's assets.

DPC had served a preliminary termination notice in May, 2001 and MSEB had retaliated by rescinding the power purchase agreement and refusing to buy power.

After the serving of the preliminary notice, there was a cooling off period of six months. This was to give the two sides enough time to arrive at an amicable solution, failing which a FTN has to be served.

While MSEB is keen on the issue being resolved by the state power regulator, the Maharashtra Electricity Regulatory Commission, the power company is keen on going to the Court of Arbitration in London.

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