IPPs to move courts seeking stay of RBI order on insolvency process

Several independent power producers are planning to individually move courts this week seeking relief from the Reserve Bank of India’s circular on the resolution of stressed assets. This comes after the Allahabad High Court last week denied a plea by the power producers’ association seeking a stay on the central bank’s order.

“The Allahabad High Court said in its order that individual companies can approach it. At the same time, there is concern that the RBI will block any legal challenge again. We will need to take decisions quickly as we only have 10-15 days’ time,” said one of the industry players on condition of anonymity.

The High Court had denied a stay on the central bank’s circular instructing banks to take all accounts above ₹2,000 crore into bankruptcy if a resolution plan is not agreed upon in 180 days. The plea was filed by the association of power producers. The deadline for the resolution ended on August 27, and banks were given 15 days to cobble together a solution or initiate insolvency proceedings.

Another industry player pointed out that banks themselves are in trouble as they need more time to complete the resolution process initiated in respect of many stressed assets. Referring those cases to the NCLT would require them to take haircuts of about 70 per cent; plus, there will be complete destruction of asset value.

“There was a certain degree of flexibility under the RBI circular to mould the resolution plan. A reference to the NCLT will set the process back to square one and will further delay a resolution. Once cases are referred under the NCLT, promoter involvement and interest may abate since, in most cases, the existing promoters may be ineligible to participate in the resolution under the NCLT,” Amit Kapur, Senior Partner, J Sagar Associates, told BusinessLine .

Around 30 power projects with a combined capacity of about 40,000 MW, which were at various stages of resolution, could now face insolvency proceedings under the IBC. The banks’ exposure to these project is estimated at ₹1.7-lakh crore.

Of this, a dozen cases, including several projects of Lanco Infratech, Athena Energy’s 1,200 MW Chhattisgarh plant, Kakrapalli thermal power project of East Coast Energy in Andra Pradesh, KVK Nilachal, Ind-Barath Madras, Krishna Godavari and others have been referred to the NCLT.

Another batch of projects, including GMR Energy’s 1,370 MW plant in Chhattisgarh, 1,200 MW Essar Mahan plant, 1,980 MW Prayagraj Power in UP and 2,400 KW KSK Mahanadi project, as well as 1,820 MW Jaypee Power Ventures, are being resolved under the Samadhan scheme worked out by lenders’ consortium led by SBI, which alone has around ₹27,000 crore exposure to stressed power assets.

According to Sabyasachi Majumdar, Senior Vice-President of ICRA, there are a few projects, including those considered under the Samadhan scheme, where capital infusion could help resolve the stress. “There are half a dozen such projects where operations are impacted because of working capital issues, so infusion of long-term capital could support the projects,” he said.

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