A successful resolution of non-performing assets worth Rs 1 lakh crore in coal-based power projects is possible with this much haircut.
A successful resolution of non-performing assets worth Rs 1 lakh crore in coal-based power projects is possible with a 40%-60% haircut, a report has said. India’s coal-based power projects are staring at least Rs 3.8 lakh crore worth of NPAs.
If lenders are willing to take 40-60% haircut, they can be able to resolve as much as Rs 1 lakh crore of debt stuck in coal-based power projects, rating agency Crisil said, adding that it will also enhance the viability of these projects on a sustained basis.
“The haircuts and safeguards, if implemented, would ease debt servicing for these capacities and will, in turn, lower their cost of generation by 30% to Rs 3.7 per unit for the next 5 years. That would be well below the current average cost of power procurement for state distribution companies (discoms),” Subodh Rai, Senior Director, Crisil Ratings said.
The Crisil analysis is based on the assessment of 16,000 MW power assets, which account for nearly two-thirds of stressed and operational coal-based capacities. Power projects, which became stressed due to several reasons including costs over-runs, inadequate PPAs and fuel supply agreements, aggressive bids etc, came under the strict scrutiny of the Reserve Bank of India (RBI) for timely NPA recognition and resolution.
As per RBI’s February 12 circular, banks were asked to take stressed accounts to National Company Law Tribunal under Insolvency and Bankruptcy Code (IBC) procedure if they failed to resolve NPA in these accounts in 180-days. On August 27, the RBI-mandated 180 day deadline ended for as many as 34 stressed power projects, many of which were staring at NCLT proceedings. These power projects turned NPAs on March 1.
However, the Supreme Court on September 11 provided interim relief to power companies and asked banks and the RBI to maintain status quo. The next SC hearing is scheduled for November 11. Meanwhile, lender of stressed Prayagraj Power Generation Company Limited (PPGCL) struck a deal with Tata Power, taking 50% haircut.
Tata Power’s joint venture Resurgent Power was on August 29 offered the letter of intent (LoI) by company’s lenders for offering to acquire 75% stake in the company for reportedly Rs 6,000 crore. The State Bank of India had then told reporters that lenders were at the cusp of resolving at least eight accounts worth Rs 70,000 crore. With the SC granting interim relief, more stressed accounts are expected to be resolved outside the NCLT.
The Narendra Modi government brought-in IBC law and vested the RBI last year with additional powers to solve India’s NPA problem, which had surged to about Rs 8 lakh crore. So far, a few stressed steel companies have been resolved or are at the cusp of being resolved, while a score of NPA accounts are at several stages of IBC procedure.