Lanco's Rao: Troubled times

Ultra-mega power projects invite ultra-mega controversy. In end-December, a combine of Globeleq-Singapore (GS) and Lanco Infratech is awarded one of two 4,000 mw ultra-mega power projects (the other goes to Tata Power). The gs-Lanco consortium bags the Rs 16,000-crore Sasan project in Madhya Pradesh as it has submitted the lowest power tariff of Rs 1.196 per unit for the project, which is just 10 paise less than the quote of the next bidder, Reliance Energy. It's a major victory for the Hyderabad-headquartered group. Not for long, though.

Just a month later, GS's parent Globeleq of the UK decides to withdraw from the project. By mid-February, the ownership at the consortium that bid for the project changes from Lanco-Globeleq to Lanco-Jindal (Jindal acquired equity stake in Globeleq Singapore after the award of the project to the Lanco-Globeleq consortium). This follows the acquisition of 100 per cent of Globeleq's equity in GS by Prince Stone Investments, a Mauritius-based holding company of Lanco Infratech, and Jindal Steel & Power (JSPL). Prince Stone is to hold 60 per cent of GS, and JSPL the rest.

Current status: Even as the consortium awaits an approach from the government and the Power Finance Corp (the nodal agency for implementing the project) to buy Sasan Power Company and to execute a power purchase agreement, there are calls to disqualify the Lanco-Jindal combine as the lead bidder has had a change of parent. There's also a call to either go in for a re-bid or to award the project to the second-lowest bidder. Speculation also abounds that there could have been elements of MIS-representation of facts in the GS-Lanco bid, relating to the financials of GS, which has been dismissed as a "shell company".

Lanco Group Chaiman L. Madhusudhan Rao rubbishes these charges. His argument: The change of entities supporting the lead bidder does not go against the bidding process and the lead bidder (Globeleq Singapore) will continue to hold 26 per cent of the equity for 12 years from the date of commercial operations. On the issue of MIS-representation, he says: "There is no MIS-representation. At best, there is a misunderstanding based on the contention of one of the bidders and this would be cleared once the bid document is read in full and not in pockets as both the annual report of Globeleq and their banker's statement have been included." Globeleq Singapore, he says, submitted the numbers of its parent, Globeleq. This, therefore, says Rao, "only shows that Globeleq Singapore qualified for the bid based on the strength of its $1.8 billion (Rs 7,920 crore) asset-based Globeleq…We have secured and submitted the legal opinion from two former chief justices of India, who have given legal opinions in favour of the consortium for taking up the power project," he adds. He is, however, not willing to comment on the speculation that the bid evaluation committee headed by HDFC Chairman Deepak Parekh had met recently and has perhaps decided to ease out Lanco. "We have no communication and perhaps they have had an informal discussion."

For the moment, Rao maintains that he is confident about the consortium continuing to be with the project. To support this, he points to the strengths of the consortium which, he says, has produced bank guarantees worth Rs 300 crore, is in a position to acquire Sasan Power Company (for around Rs 20 crore) and is capable of achieving financial closure in 12 months for the Rs 16,000-crore project. As BT goes to print, the first 90 days since the award are already over and Lanco is still keeping its fingers crossed!

-E. Kumar Sharma

Posco's Not Leaving
But the Korean steel giant may be irked with delays.

MP Kamal Nath: No more delays

Will India have to bid adieu to Rs 52,000 crore? If Posco is indeed getting more despondent by the day on account of delays in getting approvals for its proposed 12 million tonne steel plant in Orissa, that may well be the case. However, days after the reported threat of the world's fourth-largest steel maker to review investments in India, the South Korean steel giant appears to have changed its mind. "Posco is very serious and committed about the Orissa project. We've already paid the money for 1,135 acres (of the 4,004 acres needed) and as soon as possession is given we'll start work," a Posco India spokesman told BT. This comes on the heels of Posco CEO Ku Taek Lee's meeting with Union Commerce and Industry Minister Kamal Nath and subsequent assurances from the Centre and Orissa government over land allotment and mining leases.

Posco had signed a memorandum of understanding with the Orissa government in June 2005. However, in the wake of stiff resistance from locals (who allege the company wanted to acquire land at throwaway prices) at its project site in the Jagatsinghpur district, and delays in awarding mining lease, the company reportedly started contemplating a shift to Vietnam. That plan may have been shelved, for now. On the vexed issue of mining leases, the spokesman says: "It's only that the mining ministry has asked for clarifications and we are confident that the state government will furnish these in due time." The Orissa government had agreed to give Posco a lease to mine 600 million tonnes of iron ore. But permission has yet to come from the Centre, which is reviewing the country's 49-year-old mining laws.

-Ritwik Mukherjee

Why VCs Love SKS
It gives loans to the poor and returns to the loaded!

SKS' Akula: With hotshot investors in tow, he can empower more

If your interests lie in the bottom line you are likely to stay away from the poverty line. If that is how we have come to define investors, it is perhaps time to think again. Sequoia Capital, whose track-record boasts of providing venture capital to the likes of Google, Yahoo!, and YouTube, has now chosen to invest in SKS Microfinance, one of the fastest growing micro-finance institutions (mfis) in the world. It has an outreach of nearly 600,000 women borrowers in 7,200 villages in India, with 260 branches in 11 states.

Last year alone, SKS grew by nearly 160 per cent and disbursed nearly Rs 700 crore with a 99 per cent on-time repayment rate. SKS-happy being referred to as the 'Starbucks of Microfinance' as they are both aggressive in business rollouts-announced last fortnight its latest equity investment of $11.5 million (Rs 50.6 crore) with Sequoia Capital as its lead investor. Other investors included Unitus Equity Fund, Vinod Khosla, Ravi Reddy, Odyssey Capital, and-from a previous round-SIDBI. SKS's total equity now is Rs 65 crore and funds raised are to provide the stimulus to achieve its ambitious goal to provide financial services to over 5 million poor families by 2010. This goes to make SKS the largest venture-backed MFI in the world.

According to Vikram Akula, founder & CEO, SKS Microfinance, "the move is also significant from the point of the microfinance sector as it will encourage more commercial capital to come into microfinance, ultimately to enable greater financial inclusion for India's 400 million poor people." Mohit Bhatnagar, Operating Partner, Sequoia Capital India, says: "We're always looking for young and dynamic entrepreneurs to fund, and SKS has the two pre-requisites we look for in companies-a large market and a platinum team. It is truly wonderful to be an investor in an enterprise that not only makes economic sense, but that also helps to empower people across our nation."

Other than rapid growth, SKS has today gone beyond just providing loans. It offers life insurance to 1.2 million customers and has recently piloted innovative new ventures, including health insurance for the poor and urban microfinance for India's thousands of slum-dwellers. SKS charges an average interest rate of 25 per cent, which is cheap compared to money lenders and other financial organisations who charge anywhere between 35 and 75 per cent; add to that transaction, travel, brokers' fees and costs in bribes that the villagers have to dole out, and they're only too happy to pay the no-strings-attached 25 per cent.

SKS also has an NGO (non-governmental organisation) affiliate, SKS Ultra PoorProgram, which is focussed on bringing the very poor into the realm of mainstream microfinance. SKS changed its NGO status into a for-profit company in late 2006, but Akula is quick to add that this change in status has made little difference to the company and the way it is run. "When we were an NGO we worked with the business rigour of a for-profit company, and now that we're for-profit, we work with the same drive as we did when we were a non-profit company. Apart from the legal status, we're the same thing."

Interestingly, the 2,500 field staff that make up 90 per cent of the company's employees-who are 10 plus 2 graduates from rural areas-are most often the sons and daughters of SKS' borrowers. As Akula puts it: "We initially started it as a social development effort. It turned out to be a great business strategy, because even if they've never worked on a computer or in an office before, they've got very good field skills; they know the customer."

For Vikram Akula, 38, who raised $50,000 in 1996 by hosting tea parties for about 356 friends and relatives in the US, to return to India from the US and set up SKS in 1998, it is perhaps time to take credit!

-E. Kumar Sharma and Deepti Khanna Bose