Enron India row nearing end after GE, Bechtel buy

General Electric Corp and privately held Bechtel Corp won approval from a U.S. bankruptcy court recently to buy energy firm Enron's 66 percent stake in the Dabhol Power Company project, increasing at one stroke their negotiating power with Dabhol's lenders. GE and Bechtel own 10 percent each of Dabhol's $1 billion equity.

The court approval prompted Indian and overseas creditors, which lent $1.9 billion to the project, to schedule a two-day meeting next week in Singapore to agree on how to restart the plant and recover some of their money, an official at an Indian lender said recently.

"It's coming close to a resolution," said the official, who declined to be named. "We will probably finally decide at this meeting on how much of a haircut we should all take."

A "haircut" is bankers' slang for losses incurred by investors and creditors to salvage a project through debt write-offs and other means.

The four key parties involved in the project -- foreign equity holders, Indian lenders, overseas creditors and the Indian government, which provided a guarantee -- have been trying unsuccessfully for months to agree on the terms.

Dabhol's 2,184 megawatt gas-fired plant in western India has been lying idle since May 2001, when Enron shut it down after the project's sole customer, the loss-making Maharashtra State Electricity Board (MSEB), fell $240 million behind in payments.

POWERFUL COMPANIES

Unlike Enron, which is mired in bankruptcy proceedings, GE and Bechtel can force lenders to the table, said a senior Indian government official, who declined to be identified.

"Now they (GE and Bechtel) can take over, take decisions. They are two very powerful companies. They are trying to get back their money," the official said.

In January, a senior executive said GE and Bechtel would offer to sell their combined 20 percent stake in Dabhol for $380 million. This represents their original investment of $200 million, $40 million in additional costs and $140 in unpaid dues.

After the purchase of Enron's stake for $20 million, they are expected to quote at least $400 million as the price they want for their combined 86 percent stake in Dabhol.

State-run Maharashtra Power Development Corporation, MSEB's wholly owned subsidiary, will continue to own the remaining 14 percent.

Discussions between various stakeholders have got nowhere so far because each one is trying to extract, in the words of one negotiator, "his pound of flesh".

GE and Bechtel wish to exit the project by simply selling their equity to someone who will pay at least $400 million, a senior executive said.

"We are the only party that has come out and said, This is our exit price'," the executive said. "You either fish or cut bait."

Although there are four prospective buyers, the lenders have so far not agreed to an equity sale as it gives the shareholders first claim over the proceeds.

The Indian creditors in particular, which lent the bulk of the funds, prefer an asset sale, in which the winning bidder buys just the plant, giving creditors first claim.

But even the banks cannot agree on how best to recoup their loans. Foreign lenders would like to see MSEB simply take over the plant.

Indian creditors, led by state-run Industrial Development Bank of India, lent about $1.3 billion to the project. Overseas banks and institutions such as ABN AMRO Bank, Citibank, Bank of America, and U.S.-based Overseas Private Investment Corp, lent $600 million.