BHEL concerned over cheaper Chinese funds for power projects

The power equipment major is facing intense competition from private players, including Chinese entities such as Shanghai Electric Group, which are getting active in the fast-growing Indian power sector.

"If Chinese competitors continue to have access to cheaper financing, it could result in an increase in orders placed with Chinese manufacturers and a loss of new orders for domestic equipment manufacturers, including us," according to BHEL's draft document for disinvestment of the government's 5 per cent stake in the company.

In recent times, Indian entities have been able to raise funds from Chinese banks at a lower cost for their power projects while placing orders with equipment-makers from China.

This scenario is providing Chinese entities with an advantage over non-Chinese competitors in securing orders from Indian power generation companies, "which traditionally constitute our primary customer base in this sector," BHEL said.
Last month, the Reserve Bank of India allowed Indian companies operating in the infrastructure space to avail External Commercial Borrowings in the Chinese currency, the Renminbi (RMB). Currently, the amount that can be raised through this route is subject to an annual cap of USD 1 billion.

BHEL is facing significant competition from certain domestic companies that have joint ventures with foreign partners. Such ventures include the L&T-Mitsubishi Heavy Industries combine, Bharat Forge-Alstom and JSW-Toshiba.

"We also face competition from a significant number of foreign companies, such as Shanghai Electric Group Company Limited, Doosan Heavy Industries, SEPCO Electric Power, Harbin Power Plant Equipment Group Corporation and Dongfang Electric Corporation, which compete primarily on price and delivery time," the draft document said.

BHEL posted a profit-after-tax of Rs 5,499.1 crore for the year ended March 31, 2011, much higher than the Rs 4,835.1 crore it reported for the same period a year ago.
As part of its ambitious disinvestment programme, the government plans to offload a 5 per cent stake, or 2.45 crore shares, in BHEL.

The government on August 30 approved the divestment of 5 per cent of its shareholding in BHEL. Currently, the government holds a 67.72 per cent stake in the entity.

Four merchant bankers -- Morgan Stanley, DSP Merrill Lynch (Bank of America), ICICI Securities and Kotak Mahindra Capital -- would be managing BHEL's follow-on public offer