Only holistic intervention ‘can get 22GW plants going’

V Rishi Kumar Hyderabad | Updated on January 16, 2018 Published on October 28, 2016


Alvarez & Marsal eyes opportunities in turning around distressed assets

Only a concerted effort and support from the government, its relevant ministries, regulators and banks, will help resolve issues relating to nearly 22 GW (22,000 MW) of under-construction coal fired stranded plants, according to a senior executive of advisory firm Alvarez & Marsal.

Professional services firm A&M, which has helped Lehman Brothers post its bankruptcy, is engaged with a number of companies in crisis transition management. The opportunity will only get bigger, according to Venkataraman Ranganathan, Senior Director, Alvarez & Marsal India.

In an exclusive interaction with BusinessLine, Ranganathan, earlier with Macquarie Infra, said: “Nearly 22 GW of under-construction coal fired power plants are stranded due to multiple reasons leading to unviable project costs. Lenders are nervous to fund any further. The volume of stressed assets is on the rise and we see potential for restructuring and turnaround work.”

Project-specific solutions

He added, “The key is to chart out a project-specific plan for turnaround of assets,” he said predicting there could be more mergers and acquisition activity and the possibility of couple of companies collapsing.

“The infrastructure sector has become a buyer’s market, where interested players are well placed to be choosy on what they want. Changes in the regulatory and macro situation could potentially accelerate transactions,” he said.

Where there is an underlying asset like power or steel plant or toll road, the process would be faster unlike in the EPC and construction companies, where there is no underlying asset.

“We are working on a few stressed cases, helping lenders develop restructuring alternatives. For stalled projects, a realistic execution plan is drawn up and after lenders’ approval, we support in its implementation, monitor progress and ensure transparency,” he said.

Rising bad loans

Providing insights into some macro trends, Venkataraman said, “The stress in the infrastructure sector seems to be worsening with time and the level of non performing assets (NPAs) rising. While multiple new regulations have been introduced to help address the problem, we are yet to see the results of the same.”

Steps like SDR (Strategic Debt Restructure) and scheme for sustainable Structuring of Stressed sets (S4A) have seen limited success due to procedural delays, absence of consensus among lender consortium, and lack of concrete actions to improve operational performance.

At a stage where assets are already stressed, banks tend to be hesitant to lend further under existing loan agreements or regulatory framework. While this may apparently look prudent, the outcome may not favour lenders as value depletion in the underlying business will only reduce the probability of recovery for the banks, he explained.

In a power project, where nearly 80 per cent of the project has been completed, the lenders are still vary of extending loans. Both the project developer and banks are at a loss. Such projects need early resolution, he said.

A leading infrastructure company with a clutch of power projects, recently told BusinessLine how some projects have been struck as funds are not being disbursed. While majority of lenders in the consortium are open to backing the project, a couple of banks are holding up its execution.

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Published on October 28, 2016
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