With the RBI tightening rules for dealing with stressed assets, top lenders are considering creating a structure similar to an asset management company (AMC), to which they could transfer stressed power assets which could then be turned around, sources in the banking industry told BusinessLine .
The idea was among several proposals discussed at a meeting called by State Bank of India in Mumbai last week, after the RBI set an August 27 deadline for the resolution of stressed assets.
According to a person familiar with the discussion, many non-performing assets (NPAs) in the power sector are potentially good assets that, for various reasons, cannot realise a good value at present. However, with the RBI’s new guidance in place, most of these projects will be referred to the National Company Law Tribunal (NCLT), resulting in loss of valuation.
“We are looking at evolving an AMC-kind of structure to which our power assets can be transferred. If the AMC can turn around these power assets in a year or two, we can realise better value,” he added.
Lenders and promoters have been in discussions with public sector companies such as NTPC, National Hydroelectric Power Corporation (NHPC), Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) for running the stressed power assets in the lenders’ portfolio. However, the PSUs have not come forward either to buy those assets or to provide operating services.
The RBI’s circular of February 12 mandating banks to classify even a one-day delay in debt servicing as default could affect over 50, 000 MW of existing thermal power capacity, experts say.
About half this capacity is under immediate stress, an analyst with a top global consulting firm told BusinessLine . He added that bankers have divided these assets into two categories. The first category comprises one with a cumulative capacity of 4,000-5,000 MW, and are those projects where power purchase agreements (PPAs) or availability of fuel sources are in place.
Such assets could be sold off quickly, provided there is a correction in place. “Many of us believe these assets will find the new owners either before August 27 or as the result of NCLT intervention,” the expert said.
The second category of stressed assets, he said, comprises some of completed and near-completed projects that have no PPAs or other important commercials in place. It will be difficult to turn around such assets, even after the government came up with rescue measures like short-term PPAs of with three-year durations as to participate in tenders, companies require guarantees that no bank is willing to offer.