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NHPC, LIC locked in row over interest rates

business Updated: Nov 03, 2009 21:17 IST
Anupama Airy
Anupama Airy
Hindustan Times
Power major NHPC

Power major NHPC, which is stuck in a major dispute with LIC of India over the disbursement of a Rs 6,500 crore loan, is worried over a loss of image before its investors.

State-owned NHPC is exploring various options to resolve the issue, including arbitration and moving the courts.

A senior NHPC official said on condition of anonymity that the power ministry has suggested settling the issue through arbitration, adding the company was also trying to settle the row through negotiations.

“Any disengagement with LIC may cost NHPC dear and will send wrong signals to the investors. So we are also trying to settle the dispute through the negotiation route,” the official said.

Repeated attempts to reach the chairman and managing director of NHPC, S.K. Garg failed. The company’s spokesperson refused comment.

The dispute is over a line of credit of Rs 6,500 crore taken by NHPC from LIC in 2004 -05 to meet the debt requirement of its various ongoing projects.

As per NHPC, LIC disbursed Rs 1,896 crore upto June 2008, but stopped further payments. It was seeking an upward revision of interest rates from the figures in the loan agreement.

NHPC said LIC is already behind on disbursals by about Rs 2,000 crore. NHPC sources said this requirement had been met from internal resources.

NHPC, which recently got listed on the bourses, informed its board on Friday that the loan facility with LIC was projected as one of the strong points during its interactions with the investor community as part of the IPO process.

Even NHPC’s ratings from both national and international agencies factored in the Rs 6,500 crore loan tie-up with LIC.

“One of the pre-conditions of tied-up debt requirement for IPO has been met by the said loan agreement and accordingly the same was disclosed in NHPC’s prospectus also,” stated NHPC’s board agenda, a copy of which is vailable with the Hindustan Times.

“It is felt by NHPC that allowing the agreement to lapse will have other serious consequences,” it said.