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State-owned Rural Electrification Corporation (REC), one of the largest lenders in the power sector, has initiated the process to register an asset reconstruction company (ARC) under its Pariwartan (Power Asset Revival through Warehousing and Rehabilitation) initiative with the RBI, said the company’s Chairman and Managing Director PV Ramesh in the interview with BusinessLine .
As the RBI has denied special waivers from conditions such as upfront valuation for taking assets into the ARC and payment of 15 per cent of the asset value upfront — which REC had initially sought for Pariwartan — it will be registered as per the central bank’s original guidelines, said Ramesh.
“We will follow the RBI framework and will determine the value upfront and will pay 15 per cent value upfront. The value is so depressed for these assets that the fair value could be just 30-40 per cent of the true economic value,” he said, adding that since the lenders will continue to retain a stake in the assets, the value erosion will not impact them adversely.
According to Ramesh, REC is currently catalysing the process of identifying the stakeholders that will capitalise the ARC.
“Our board has already approved this while PFC (Power Finance Corporation) is going through the board approval process. NIIF (National Investment and Infrastructure Fund) is going through its own review process,” he said, adding that NTPC is also considering being a part of ARC, although “they are not yet categorically on board”.
Several leading banks, including Punjab National Bank, ICICI Bank, Axis Bank, YES Bank and Bank of Baroda, have agreed to support the setting up of an ARC in principal. “They have to go through board approvals now,” Ramesh added.
Initial capital
While the initial capital requirement of ₹100 crore for the ARC will be met by REC, the rest will have to come from other stakeholders, strategic investors or the capital market.
REC has listed around 10 assets with a cumulative capacity of about 10,000 MW. “It is difficult to name the assets as the lenders will have to collectively agree that these are the assets (to be transferred to the ARC),” Ramesh said.
He added that some of the assets where insolvency proceedings have already started or will be initiated (once the stay period of two months identified by the Supreme Court in its order last week is over) could also be transferred to the ARC, provided lenders agree on that.
The RBI’s deadline for resolving stressed power assets with a cumulative capacity of around 30,000 MW had expired last month. The Pariwartan scheme was incepted in order to prevent their distress sale under the IBC.
The progress of setting up the ARC was sped up by the Allahabad High Court’s denial of relief to power companies that had challenged the RBI’s February 12 circular on NPAs.
Although last week the Supreme Court granted an interim stay on the RBI circular till the next hearing, in November, the process of identifying the stressed assets to be warehoused by the ARC will continue irrespective of the resolution processes under IBC.
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