This is the first time that an asset-backed securitised structure has been designed in the power sector, sources said. This effectively means that cash flows from a newly set-up power plant is being securitised. Earlier, such deals have been struck in telecom and oil sectors.

The deal -- structured by ICICI and L&T-- was managed by ICICI-Securities, DSP Merrill Lynch, Citibank and ANZ Grindlays Bank.

According to sources, the engineering giant has floated a special-purpose vehicle (SPV) -- India Infrastructure Developers -- which will be erection, procurement and construction contractor.

The SPV is issuing bonds to debenture holders bearing a coupon of 14.25 per cent (monthly) for a maturity of 8 years and 10months. The instrument has no call-and-put option and the average maturity works out to five years. The monthly payment will start in January 2000 and continue till December 2007. The interest payment for the initial ten months will be amortised, sources said.

The special-purpose vehicle will then start paying back through an amortised structure, that is, a little amount of principle as well as interest, similar to EMI structure for housing loans, on a monthly basis. This amount will flow into an escrow account which will be opened to service debenture holders on a monthly basis. Sources said that the Rs 409-crore issue has been fully subscribed by banks and institutions.

Being a SPV floated by L&T, the exposure of banks and institutions is restricted to the engineering giant, sources said.

L&T has transferred the captive power plant project to the special-purpose vehicle which will build the plant and then lease it out to IPCL for at least eight years. Sources, however, said that the lease period canbe higher for which the debentures have been floated.

The lease rentals will start flowing into the escrow account, which has been floated to service the debenture holders, after the commencement of the project, scheduled in October 1999.

INSIGHT

An innovative deal

This deal would qualify as an innovative one for the power sector. Further, the structure underscores the new complexities involved for awarding projects to EPC contractors. It was always understood that a credit facility would accompany any bid for a project. Now, financing structures have gone beyond credit facilities. The advantage for L&T is that it does not have to shell out the funds for the credit. For companies such as L&T with strong balance sheets it is not just liquidity but the ability to leverage its balance sheet strengths that will gain it additional business.