Contents

1.Debt Equity Contribution

2.Upfront Equity

3.Collateral Security

3.1Security Options

3.2Need for seeking collateral security

3.3Requirement of Collateral securities

3.4Requirement and Quantum of Collateral securities

3.4.1REC acting as a Lead Fl

3.4.2REC is not lead Fl

3.5Release of Collateral Securities

3.5.1For Future Sanctions

3.5.2For Past Sanctions

3.5.3Department responsible for release of collaterals

4.Moratorium & Repayment Period

5.Fees

5.1Processing Fee and Revalidation Fee

5.2Upfront Fee

5.3Lead Fees

5.4Syndication Fees

5.5Rerating Fee at Borrower’s Request

5.6Commitment Fee

5.7Security Trustee Fee

5.8Prepayment Charges and Policy

5.9Rate of Interest in case of Consortium finance

6.Other Provisions of Loan Policy

List of Tables

Table 1: Debt Equity Contribution

Table 2: Grade and Upfront Equity

Table 3: Additional Upfront Equity

Table 4: Grading and Collateral Security

Table 5: Collateral release for Past Sanctions

Table 6: Grade and Upfront Fee

Table 7: Lead Fees......

Table 8: Grading and Syndication Fees

List of Figures

No table of figures entries found.

Rural Electrification Corporation

1.Extent of Funding

REC may take exposure of up to 100% of the debt component in in private small projects having capacity up to 100 MW. For other private sector projects, the exposure will be limited to 50% of the project cost. However, the overall exposure will be limited to prudential norms approved by the Board of REC from time to time.

2.Debt Equity Contribution

Looking at current market scenario the financing structure of a project is to be determined on the basis of appraisal. However, following broad guidelines may be followed for finalizing the structure:

Table 1: Debt Equity Contribution

Debt Equity Ratio extendable to / Parameters / Benchmarking
80: 20 / Integrated Rating / IR 1 and IR 2
Promoter Experience /
  1. Promoter experience of successful implementation of at least one power project
  2. Promoter experience in setting up power project(s) with total capacity (including under commissioning) more than the current proposal or commissioned total capacity more than half of the current proposal

80: 20 / Integrated Rating / IR should be 3 or better than 3
Promoter Experience /
  1. Promoter to be an existing Borrower of REC with satisfactorily track record and successful commissioning of at least one project funded by REC
  2. Promoter experience of successful implementation of one power project
  3. Promoter experience in setting up power project(s) with total capacity (including under commissioning) more than the current proposal or commissioned total capacity than half of the current proposal

Project Characteristics /
  1. Project awarded through competitive bidding (Case II) or assured fuel supply for minimum 70% PLF or Hydrology details for 10 year
  2. Levelised cost of generation not higher than the levelised cost of generation derived from the Integrated Rating Model being mid-point of the band limits for various types of projects as arrived at the beginning of the Financial Year.
  3. Average DSCR ≥ 1.2 (For Thermal Projects ≥ 500 MW and Hydro Projects ≥ 300 MW
  4. Average DSCR≥1.3 (For other projects)
  5. Minimum DSCR ≥ 1.0

75:25 / Project Characteristics / UMPPS being developed under the initiative of Central Government.
75:25 / Integrated Rating / IR should be 4 or better than 4
Promoter Experience / Promoter experience in power sector and successful implementation of infrastructure projects to the satisfaction of REC.
Project Characteristics /
  1. Project awarded through competitive bidding (Case II) or assured fuel supply for minimum 70% PLF or Hydrology details for 10 year
  2. Levelised cost of generation not higher than the levelised cost of generation derived from the Integrated Rating Model for Private Sector Generation Projects being mid-point of the band limits for various types of projects as arrived at the beginning of the Financial Year.
  3. Average DSCR ≥ 1.2 (For Thermal Projects ≥ 500 MW and Hydro Projects ≥ 300 MW
  4. Average DSCR≥1.3 (For other projects)
  5. Minimum DSCR ≥ 1.0

Senior Debt: Subordinate Debt: Equity – 70:5:25 / Integrated Rating / Integrated Rating 3 or better with both 70:30 and 70:5:25 D/E ratio
Project Characteristics /
  1. Average DSCR ≥ 1.20
  2. Minimum DSCR ≥ 1.00

Senior Debt: Subordinate Debt: Equity – 75:5:20 / Integrated Rating / IR 1 and IR 2
Senior Debt: Subordinate Debt: Equity – 75:5:20 / Integrated Rating / IR should be 3 or better than 3
Promoter Experience /
  1. Promoter experience in successful implementation of one power project
  2. Promoter to be an existing Borrower of REC with satisfactory track record
  3. Promoter experience in setting up power project(s) with total capacity (including under commissioning) more than the current proposal or commissioned total capacity than half of the current proposal

Project Characteristics /
  1. Project awarded through competitive bidding (Case II) or assured fuel supply for minimum 70% PLF or Hydrology details for 10 year
  2. Levelised cost of generation not higher than the levelised cost of generation derived from the Integrated Rating Model for Private Sector Generation Projects being mid-point of the band limits for various types of projects as arrived at the beginning of the Financial Year.
  3. Average DSCR ≥ 1.2 (For Thermal Projects ≥ 500 MW and Hydro Projects ≥ 300 MW
  4. Average DSCR≥1.3 (For other projects)
  5. Minimum DSCR ≥ 1.0

Senior Debt: Subordinate Debt: Equity – 70:10:20 / Integrated Rating / IR should be 4 or better than 4
Promoter Experience /
  1. Promoter experience in successful implementation of one power project
  2. Promoter experience in setting up power project(s) with total capacity (including under commissioning) more than the current proposal or commissioned total capacity than half of the current proposal

Project Characteristics /
  1. Project awarded through competitive bidding (Case II) or assured fuel supply for minimum 70% PLF or Hydrology details for 10 year
  2. Levelised cost of generation not higher than the levelised cost of generation derived from the Integrated Rating Model for Private Sector Generation Projects being mid-point of the band limits for various types of projects as arrived at the beginning of the Financial Year.
  3. Average DSCR ≥ 1.2 (For Thermal Projects ≥ 500 MW and Hydro Projects ≥ 300 MW
  4. Average DSCR≥1.3 (For other projects)
  5. Minimum DSCR ≥ 1.0

NOTES:

1)In all the above cases, DSCR and Levellised Cost of Generation shall be calculated considering 12 years repayment periods irrespective of the repayment period allowed as per terms of sanction and considering other parameters as given in the Integrated Grading Methodology.

2)In Consortium/ Syndication cases, REC may adopt the D/E ratio generally agreed to by the consortium members and indicated by Lead Fl/Bank on merits of the case.

3)For Thermal Generation projects of less than 250 MW and Hydro Generation and Captive power projects of less than 100 MW; minimum requirement of equity shall be 25% of the project cost.

4)In case a project is being set up on existing balance sheet having operational project(s), the debt equity ratio of the entire company shall be considered based on merits which may not be higher than 70:30.

5) Regarding promoter experience for above purpose, Promoter would also include any group company which may or may not directly participate in project equity.

3.Upfront Equity

The upfront equity requirement for entity as a whole will be determined on the basis of the final grade obtained by the entity, as detailed below:

Table 2: Grade and Upfront Equity

Final Grade / Upfront Equity*
Grade 1 & 2 / 15%
Grade 34 / 25%
Grade 5 / 40%

* as a percentage of project equity

However, in cases of equity participation by non-gradable special categories of promoters; where the gradable promoters are not willing to provide a ‘joint and several’ undertaking/guaranteefor the entire project equity, the additional upfront equity requirement from such promoters may be determined as under:

Table 3: Additional Upfront Equity

Special Category Promoter / Upfront Equity*
Governments / PSUs / 0 %
Banks / FIs / IFCs / 0 %
PE / VC / Infrastructure Funds/ Mutual Funds / 15 %
NBFCs /Individuals / Others / 25%

^ as a percentage of the respective promoters’ equity contribution

Upfront equity in case any promoter contributes less than 10 % of total equity

In case any promoter proposes to contribute less than 10% of total equity share, then said promoter(s) shall be required to bring 100% of his equity contribution as upfront equity and other remaining promoter(s) shall be required to contribute at least that amount as minimum upfront equity or amount as arrived at as per IRwhichever is higher.

Upfront equity in cases where project cost does not exceed Rs 300 crores

In cases where aggregate project cost does not exceed Rs 300 crores, upfront equity requirement from Private equity/venture capital/Infrastructure Funds, NBFC, Mutual funds, Individuals and others shall be 100% of their respective equity contribution

Upfront equity in cost overrun cases

In case of REC funding cost overrun portion of the unavoidable increase in the project cost, upfront equity contribution by the promoters shall be 100%.

4.Collateral Security

The guidelines for the requirement of collateral securities and release thereof shall be linked to the integrated rating mechanism. The proposed policy guidelines for security are as follows:

4.1Security Options

The security options may be broadly categorized as under:

1)Primary security

  1. Charge on Assets;

2)Collateral securities

  1. Corporate guarantee;
  2. Personal guarantee of promoters;
  3. Pledge of shares of promoters;
  4. Charge on assets of group/other companies;
  5. Charge on revenues of group/other companies;
  6. Any other guarantee acceptable to the Corporation;

3)Payment security Mechanism

  1. Escrow Account/Letter of Credit;
  2. Establishing trust and retention mechanism;

4)Other covenants

  1. Assignment of all project contracts, documents, insurance policies in favor of Corporation;
  2. Upfront equity requirement
  3. Other covenants in the form of DSRA, DE ratio, shareholders’ agreements, financial closure, etc., as applicable, should be prescribed.

4.2Need for seeking collateral security

Need for seeking collateral securities arises primarily to address risks/concerns arising on account of the following:

1)Timely infusion of equity;

2)Construction Risks (cost overrun, project implementation, etc.); and

3)Back-up support in the event of Borrowers making default after commissioning of the project.

4.3Requirement of Collateral securities

The requirement of collateral securities would be linked to the gradation of projects as per integrated Rating Mechanism.

4.4Requirementand Quantum of Collateral securities

4.4.1REC acting as a Lead Fl

4.4.1.1SPV funding

Depending upon the integrated rating of the project the quantum and nature of collateral securities/additional covenants would be as under:

Table 4: Grading and Collateral Security

Integrated Rating / Collateral Security/ Additional Covenants to be prescribed
IR – 1 / 2 / Pledge of Shares / At least 26% of project equity till currency of REC loan with non-disposal undertaking for additional 25% till 50% of loan is repaid;
DSRA / At least 2 quarters
On repayment of 50% loan, DSRA requirement may be brought down to 1 quarter.
IR – 3 / Pledge of Shares / At least 51% of project equity till currency of REC loan; however 25% may be considered for release after 50% of loan is repaid.
DSRA / At least 2 quarters
IR – 4 / Pledge of Shares / At least 51% of project equity till currency of REC loan;
On repayment of 75% loan, REC may consider to release 21% pledge of shares.
DSRA / At least 2 quarters
Personal Guarantee of at least two promoter directors, where promoters do not have prior experience in setting up projects.
In case of subordinated debt, additional pledge of 10% shares would be required which may be considered for release after 50% of the entire project loan is repaid.
IR – 5 / Pledge of Shares / At least 60% of project equity till currency of REC loan;
On repayment of 75% loan, REC may consider to release 9% pledge of shares.
DSRA / At least 3 quarters
Personal Guarantee of at least two promoter directors,
Option to convert up to 10% of REC’s loan disbursed; into equity shares at book value any time up to 5 years alter the Commercial Operation Date (COD).
In case of subordinated debt, additional pledge of 16% shares would be required which may be considered for release after 50% of the entire project loan is repaid.

While considering release of pledge of shares or reducing DSRA requirement as above, the composite rating would be carried out and collateral requirements for the revised grade would be applicable.

4.4.1.2On balance-sheet funding

In the case of on-balance sheet funding, pledge of shares shall not be insisted upon, if the Borrower agrees to provide comfort on its revenue stream to the satisfaction of REC. However, the core promoters shall be generally required to retain their existing shareholding during currency of the loan. This requirement would be applied suitably; depending upon the shareholding pattern of the company keeping in consideration that change in shareholding pattern does not adversely affect REC’s interest.

4.4.1.3Additional Collateral Security to mitigate construction stage risks/concerns

To address specific risks/concerns anticipated during the construction phase, additional collateral security may also be prescribed as may be assessed during the course of appraisal.

4.4.1.4Other Covenants

In addition to the above, other covenants may be prescribed in accordance with the other policies. Upfront equity requirement would continue to be governed by appraisal guidelines.

4.4.2REC is not lead Fl

In such cases collateral security requirement would be considered on case to case basis, depending upon the collateral securities prescribed by the lead FI/ Bank.

4.5Release of Collateral Securities

4.5.1For Future Sanctions

For future sanctions, the risks proposed to be covered by collaterals/covenants other than those prescribed in paragraph 4.4.1.1 & 4.4.1.2 above would be identified in the appraisal note during the appraisal process. Specific milestones to be achieved before release of related collaterals would also be identified in the appraisalnote. After the milestones are achieved, on the request of the Borrower, release of related collateral would be considered after satisfying the following conditions:

1)Availability of audited annual accounts covering operations of the Borrower for atleast 12 months after COD

2)Satisfactory operation of the project for past one year after COD

3)Certificate for ‘no current defaults’ in respect of all borrowings of the Borrower from its statutory auditors

4)Adequacy of TRA reserves as per the loan covenants

5)Receivables for not more than 2 months sales equivalent

6)DSCR not less than the average DSCR projected at the time of sanction of loan, as per last annual accounts

7)There are no major adverse factors affecting the performance of the project.

4.5.2For Past Sanctions

For past cases, requests for release of collaterals could be considered subject to achieving the related milestones, if any, and reviewing the project on parameters mentioned at 4.5.1 above. If no milestones were related, the request could be considered after reviewing the project on parameters mentioned at 4.5.1 above as under:

Table 5: Collateral release for Past Sanctions

Loan outstanding reducing to a level less than / Collaterals which can be released
Two — third of original loan sanction / Collaterals other than pledge of shares, personal guarantees and corporate guarantee
One – half of original loan sanction / Collaterals other than pledge of shares, and personal guarantees

4.5.3Release of collaterals

CMD will have full powers for release of collaterals on the recommendation of three members committee comprising of ED/GM of Finance, Law and concerned operating division.

5.Moratorium & Repayment Period

Moratorium Period

The Moratorium period for principal repayment shall be six months after the Scheduled COD subject to a maximum of 5 years from the date of first disbursement for all type of generation projects.

Repayment Period

The repayment period (in addition to moratorium period) for hydro projects shall be 15 years while the rest of the projects will have a repayment of 12 years.

Total Repayment Period

The total repayment period shall therefore be as follows:

1)The scheme period for all type of projects (except Hydro projects) = Scheduled COD + 6 months moratorium (total restricted to 5 years from the date of first disbursement) + 12 years Repayment.

2)For Hydro projects = Scheduled COD + 6 months moratorium (total restricted to 5 years from the date of first disbursement) + 15 years Repayment.

Though generally moratorium period is given as maximum 5 years from the first disbursement, higher moratorium period may be considered on merits of the case and with the approval of Board provided total repayment period does not exceed 20 years.

Further REC Board can also consider total scheme loan period i.e. (from date of disbursement to last repayment date) for 20 years, where projects are on tariff based bidding process and cash flows are being supported only when long repayment period is given.

6.Fees

6.1Processing Fee and Revalidation Fee

Processing Fee and Revalidation Fee applicable for Private Sector Borrowers shall be charged as follows:

1)Processing Fee - Private sector Borrowers requesting for REC’s financial assistance shall have to pay a non-refundable processing fee @ 0.1% of loan sanction amount subject to minimum of Rs.5 lakh andmaximum of Rs.30 lakh. Private Sector Borrower shall be required to pay 50% of the processing fee at the time of submission of loan application.

The balance amount of processing fee shall be paid within 30 days from the date of intimation by REC for issue of sanction letter. In case the Borrower fails to deposit the said amount, the sanction letter shall not be issued.Further, in case, at a later date the Borrower evinces interest in REC loan/support, the matter could be reviewed on its merit on case to case basis and decision/approval taken on case as necessary.

2)On receipt of requisite processing fees, the Borrowers shall be issued sanction letter containing the terms & conditions of sanction.

3)In case, the Borrower does not execute the loan documents within the stipulated time period of 6 months, REC may consider granting extension of validity period of sanction at its discretion, as per the request(s) of the Borrower. Such extension of validity period should normally be given for a maximum period of six months at a single time. Significant development/progress in the project, reasons for not completing documentation, impact of delay on the project under consideration, time in which documentation is expected to get completed etc should be highlighted and considered at time of issue of revalidation letter.