A motorcyclist travels along a road as smoke rises from a chimney at the Tata Power Co. Trombay Thermal Power Station in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Power Resolutions Begin But It’s A Long Road Ahead For Bankers

For India’s lenders, recovering money from stressed power projects was always going to be the toughest.

Many of these projects were dealing with cost overruns, lack of adequate fuel linkages and power purchase agreements. Bringing in new buyers under these conditions was a tough ask. While that remains the case, some early deals have started in this sector, offering temporary relief to bankers.

Lenders have been able to find buyers for three plants, bankers in the know told BloombergQuint. The average recovery rates across these three transactions range between 35-54 percent.

  • Bankers were able to sell Prayagraj Power Generation Company Ltd. for about Rs 6,000 crore to Tata Power-backed Resurgent Power in November 2018 after long negotiations, two bankers in the know confirmed. The outstanding debt, in Prayagraj Power stood at Rs 11,086 crore, according to a presentation by SBI Capital Markets.
  • In the case of SKS Power Generation (Chattisgarh) Ltd., a deal was struck with Singapore-based investor Agritrade Resources Ltd. for Rs 2,170 crore, where the outstanding debt was around Rs 5,000 crore, the bankers quoted above said.
  • In December, NHPC informed stock exchanges that it had been selected as the preferred bidder for the debt-ridden Lanco Teesta Hydro Power Project under the Insolvency and Bankruptcy Code. NHPC’s bid was worth Rs 900 crore as against debt of close to Rs 2471 crore for the project, according to a person familiar with the deal. A second banker familiar with the deal said recovery, when compared only to the principal outstanding, would be close to 57 percent in this case.

Bankers are also negotiating a sale of assets owned by Jaypee Power Ventures Ltd. with potential buyers. A deal is yet to be finalised.

A senior power sector analyst, speaking on conditions of anonymity, stated that the rates of recovery for Prayagraj Power and SKS Power were high because these projects had the requisite power purchase agreements (PPAs) and fuel supply arrangements (FSAs) in place. This may not be the case for other assets that bankers are trying to resolve outside of the IBC, the analyst cautioned.

The Samadhan Accounts

Bankers had drawn up a list of 11 stressed power assets being they wanted to resolve outside the IBC under the Samadhan Scheme, being driven by State Bank of India (SBI).

The total debt across these projects was around Rs 70,000 crore.

In an interview with BloombergQuint in August 2018, SBI Managing Director, Arijit Basu had said that for seven of these accounts, lenders were hoping to recover close to 50 percent of dues.

Two of the three accounts resolved recently are part of this pool of 11 assets.

The analyst quoted said that six of the eleven projects being resolved under the Samadhan Scheme are facing issues such as cost overruns and a lack of PPAs and FSAs, which will hurt recoveries. A small pool of potential buyers may further depress eventual recovery rates from the portfolio.

Of approximately 35-40 gigawatt of stressed power assets on sale, lenders may be able to sell about 8-10 GW at a reasonable price, the analyst said.

From Recognition To Resolution

A resolution of power sector assets is crucial for bankers who are dealing with over Rs 10 lakh crore in bad loans.

While banks have been able to recover close to 50 percent in sectors like steel and construction, the recovery rate for power assets could be below 30 percent, said one of the bankers quoted above.

In particular, bankers fear that resolving power projects through the IBC route could be a long drawn out process, which could hurt potential for recovery even further. In this regard, bankers remain hopeful of relief from the courts on resolution of power accounts. A plea by the power sector to exempt it from the RBI’s February 12 circular for resolution of stressed assets is still pending with the Supreme Court.

As per its last restructuring norms released in February 2018, the Reserve Bank of India requires all lenders to be on board for a restructuring plan to ensure that it is implemented within the first six months of default. If they fail to agree on a resolution plan within this time frame, the asset must be referred for insolvency.