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Shares of Power Finance Corporation and Rural Electrification Corporation are trading down by 3 per cent and 4.5 per cent respectively due to announcements of new financial restructuring plan for state electricity boards.
Analysts fear that restructuring will be painful for these companies, which are focused on power sector. The companies would have to forego interest payments or revise the moratorium period, he added.
Centrum Broking sees this as more of a temporary solution and fears failure just like it happened in the previous restructuring scheme in 2012.
"The sector continues to face problems in terms of demand (peak demand deficit at 2.3% in July 15), AT&C losses (22.7% as at FY14) and the inability to raise tariffs at frequent intervals. From the power sector perspective, this is a short-lived reform as structural challenges (enumerated below) will persist," it said.
While PFC is more focused on generation than distribution, state entities formed 60-70 per cent of the company's sanctions, disbursements and loan book.The company's Rs 700 crore tax free bonds issue has received a good response and got oversubscribed by around 5 times as on October 5.
REC is more focused more distribution and provides loans to central/ State Sector Power Utilities, State Electricity Boards, Rural Electric Cooperatives, NGOs and Private Power Developers.
A PTI report said the government is working on debt recast of state power distribution companies to improve the deteriorating financial health of the discoms that are also responsible for rising bad loans of public sector banks.
“We are working very closely with the Power Ministry and also the affected 8 stressed states,” said Finance Secretary Ratan P Watal.
According to sources, the Union Cabinet is likely to consider this week a proposal to recast Rs 4.3 lakh crore loan of nine state power distribution companies with a view to bringing down their liabilities.
The total loans to the discoms in the nine states —— Uttar Pradesh, Tamil Nadu, Telangana, Rajasthan, Madhya Pradesh and Jharkhand —— add up to Rs 4.3 lakh crore, sources said.
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