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Power sector players are expecting a return of the debt restructuring schemes and revival of the Joint Lenders Forum designed to resolve potential bad debts. This follows the Supreme Court’s recent decision to quash the RBI circular of February 12, 2018, on resolution of stressed assets.
The return of the debt restructuring schemes is expected to provide more flexibility to the power generation companies in terms of their debt repayment schedule. Till the February 12 circular came into existence, promoters of power generating companies were gaming the system by colluding with bankers. The circular had sought to rein in on such practices. However, now the promoters may have cause for cheer with the return of debt restructuring schemes.
All eyes are now on the RBI to see how it would handle the Supreme Court verdict and frame a revised circular as promised by the RBI Governor Shaktikanta Das recently. Indications are that the central bank may not provide a major breather in its new circular on resolution of stressed assets.
However, there is a window of opportunity for the power producers till the RBI makes its next move, said industry representatives.
Individual assessment
“The Supreme Court order has once again empowered the banks to individually assess each stressed asset. The quashing of the February 12 circular means that the earlier schemes of debt restructuring will be valid,” Director-General of the Association of Power Producers, Ashok Kumar Khurana, told BusinessLine .
According to Khurana, banks can now once again opt for the schemes such as Corporate Debt Restructuring, Sustainable Structuring of Stressed Assets or S4A, Strategic Debt Restructuring, and Flexible Structuring of Existing Long-Term Project Loans. “The Joint Lenders Forum designed to resolve potential bad debts can also make a come back,” he added.
According to the report of the High-Level Empowered Committee to address the issues of stressed thermal power projects, there are 34 stressed thermal power assets with a total capacity of 40,130 MW in the country. Of these, 21,614 MW of assets do not have power purchase agreements (off-take assurance) and 10,940 MW of assets do not have coal supply assurances.
Read:IBBI to conduct roadshow in Hong Kong to highlight opportunities in stressed assets
“The RBI circular had never really addressed the issues of stressed assets in the thermal power generation sector. The proposed circular would have resulted in just the ownership changing hands and the banks would have lost out on some good recoverable assets,” Harry Dhaul, Director-General of Independent Power Producers Association of India, said.
This will give a breather to banks for power projects that would have otherwise been pushed into insolvency resulting in massive haircuts on account of desperate recoveries.
“The banks can also carry out a Swiss challenge to see if any other bidder is willing to pay more than the agreed One Time Settlement amount proposed by the promoters. The one-time settlement helps to fix a reserve price which the owner is willing to pay and is usually based on sustainable debt level. The hanging sword of pushing companies into the IBC framework for the 180 day default stands withdrawn, giving banks a breather,” Khurana said.
But financial restructuring is not the solution for reviving the stressed assets in the power sector, said Dhaul.
According to Dhaul, “Even if there would have been a resolution under it, the underlying issues related to coal supply and delayed payments from power distribution companies would have continued.”
Promise for reforms
“The government, towards the end of its tenure, has been able to promise some reforms through the recent Cabinet decisions. But it was too late and the next government will have to maintain the momentum of reforms and implement them. Situations where there are no Power Purchase Agreements (PPAs) would have resulted in the new owners becoming bankrupt too. The absence of coal, PPA, payment security, as has happened in the case of Meenakshi Power, needs to be addressed,” he added.
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