(Bloomberg) -- Deutsche Bank AG is offering to buy the debt of an Indian power producer at a discount of about 70%, according to people familiar with the matter, the second such proposal from the German lender in recent weeks.
It proposed to pay 11.50 billion rupees ($162 million) for 39 billion rupees of loans, excluding accrued interest, to a power plant operated by the GVK conglomerate in the northern state of Punjab, the people said, asking not to be identified as the deliberations are private. Another 4 billion rupees would be paid if the company fulfills agreed targets over a specified period, they added.
Selling off these soured assets could free up cash for Indian banks, which are saddled with the world’s worst bad-loan ratio. The urgent need to clean India’s financial sector offers foreign investors such as Deutsche Bank an opportunity to try to generate outsized returns by buying distressed debt at a discount. But risks abound and some funds have also encountered pitfalls.
Deutsche Bank is leading a consortium of bidders in the proposed deal, according to one of the people. The bank had similarly headed a team which emerged as the only bidder for the debt of Jindal India Thermal Power Ltd.
A Deutsche Bank representative declined to comment. GVK didn’t immediately reply to an email seeking comment.
India’s power sector has been hit by fuel shortages and plummeting power prices, eroding the of investments made in past years to bridge the country’s chronic electricity deficit. Loans to the industry were the most vulnerable to capital erosion after metals, according to a stress test by the Reserve Bank of India.
While banks have individually assessed Deutsche Bank’s offer for the debt of GVK Power Goindwal Sahib Ltd., they will discuss the terms collectively at a meeting later Monday, the people said. They added that Deutsche Bank had also made a priority-loan to the distressed project.
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