In a deal being midwifed by a consortium of bankers led by IDBI Bank, Karnataka Power Corporation (KPCL) is close to buying out privately held power generator Surana Power (SPL). Sources familiar with the development told FE that talks were now at an advanced stage with the negotiations being driven by lenders to the loss-making and highly-leveraged SPL. The initiative on the part of the bankers stems from the apprehension the precarious state of SPL’s finances might cause it to default.
While the company had attempted to raise some equity, the effort, bankers said, had fallen through. SPL’s annual report notes that the company was in discussions with several private equity (PE) firms, specifically Swiss firm USI Group Holdings. However, a public sector banker said that the talks had broken down. Queries sent to USI remained answered.
The promoters of SPL, which is a subsidiary of the BSE-listed Surana Industries (SIL), are understood given their “tacit approval” to the lenders to negotiate on their behalf. SPL’s total debt as at the end of financial year 2013-14 was around R2,000 crore. The company did not respond to calls and emails sent to it by FE.
SPL had restructured a term loan of R108.98 crore and cash credit of R11 crore with UCO Bank in FY14. The restructuring package allowed for a moratorium period of two years which ends in August 2015.
The interest on the term loan and cash credit was converted into a funded interest term loan (FITL) of Rs 33.30 crore. SPL’s parent company SIL had also restructured debt of around Rs 1,331 crore via the corporate debt restructuring mechanism in March 2014.
SPL operates a 35 MW thermal power plant in Raichur, Karnataka, and is executing another 420 MW project in the same area. Bankers familiar with the matter said SPL’s under-construction plant is adjacent to KPCL’s existing 1,720 MW thermal unit, one reason for the state-owned company’s interest.
SPL’s 2014 annual report noted that the 420 MW project was moving at a slow pace — at the end of FY14, SPL had invested around Rs 1,657.63 crore against the revised project cost of Rs 3,000 crore. One banker observed the project was still 20 months away from being commissioned. “The slow project progress is mainly attributable to the prevailing economic environment, delays in disbursement of funds, delay in the infusion of equity into the company, substantial portion of funding going towards servicing the interest on the loans, etc,” the SPL management wrote in its annual report.
The company was also facing issues at the 35 MW plant with the unit operational for only a limited period in Q1FY14 and earning tariffs that were unviable and uneconomical during the rest of the fiscal. SPL said that of the annual sales of Rs 70 crore, 80% was attributable to coal trading while the rest was revenue gained from the sale of power. With SPL’s plant operating at suboptimal levels and the working capital proving to be inadequate, the company faced cash flow issues causing it to delay payments of various statutory dues.