Smoke rises from a chimney as electricity pylons stand at a thermal power station in India. (Photographer: Dhiraj Singh/Bloomberg)

India's Struggling Power Producers Welcome Supreme Court’s Debt Ruling

(Bloomberg) -- India’s power industry welcomed a top court decision to strike down central bank rules that tightened loan default guidelines, saying the move offers a sustainable financial path forward for debt-laden power producers.

“The court’s order is a recognition of our argument that systemic issues can’t be fixed through mechanical means,” said Harry Dhaul, director general of the Independent Power Producers Association of India. “This should now draw attention to the core issues facing the sector and we’re hoping the resolution process should gather momentum.”

Fuel shortages and insufficient demand from state distribution companies have left Indian power plants underutilized, with many struggling to generate enough cash to repay debt. To make matters worse, an accelerated push on renewables is gradually eating into the demand for thermal power.

The Reserve Bank of India’s surprise guidelines issued last year aimed to effectively rush delinquent lenders, dominated by the power sector, into bankruptcy court and restructuring. Industry groups representing power-generators, shipyards and sugar mills had challenged the directive.

To read more about the Supreme Court decision to overrule the central bank directive, click here.

The ruling this week is a relief for the generators, which are pinning their hopes of financial recovery on existing government efforts to improve access to coal and secure more reliable power purchases from distribution companies, according to Rupesh Sankhe, an analyst with Elara Securities in Mumbai.

“As the situation improves, the companies and the lenders can bilaterally work out a resolution plan,” he said.

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