Lenders to Udupi Power Corporation and Krishnapatnam Port have refinanced a combined Rs 9,500 crore using the Reserve Bank of India’s (RBI) 5/25 scheme, bankers familiar with the development told FE. In the case of Krishnapatnam Port, repayment terms for Rs 4,600 crore have been tweaked while for Udupi Power, these have been reworked for loans of Rs 4,900 crore.
Interestingly, a set of new banks has joined the existing consortium, allowing banks to protect their net present value without raising the existing interest rate, as per RBI rules.
Udupi Power is located in Karnataka, 35 km north of Mangaluru. The plant was bought from Lanco Infra by Adani Power in August last year at an enterprise value of Rs 6,000 crore. A consortium led by State Bank of India (SBI) recently refinanced Rs 19,000 crore of loans of two subsidiaries of Adani Power — Adani Power Maharashtra and Adani Power Rajasthan.
According to documents available with the registrar of companies, the total debt of the Krishnapatnam Port stood at Rs 4,857 crore in FY14, up 31% over the previous year. The total debt of Udupi Power stood at Rs 3,797 crore
in FY14, down 7% from a year earlier.
In FY14, Udupi Power’s interest expenses rose 35% to R904.6 crore, leaving it with a net profit of R124 crore. In the case of Krishnapatnam Port, the net profit plummeted 64% to R82 crore as its interest expenses doubled to R284.4 in the same period.
Bankers told FE the loans had been reworked since the projects, in both instances, are considered to be viable and also because there have been no defaults. They pointed out that for some companies in the infrastructure segment, it has become difficult to refinance the debt since the promoters have defaulted.
Krishnapatnam Port is promoted by the Hyderabad-based CVR Group and led by C Visweswara Rao, who is the chairman. Navayuga Engineering is the flagship entity of the CVR Group and is the EPC contractor for Krishnapatnam Port. The company’s website describes the CVR Group as highly diversified with a turnover of $1 billion and with an order book of $10 billion comprising power, steel, port establishment, spatial technology & applications, information technology and exports.
A refinancing of loans works well for borrowers because they do not need to bring in fresh equity as they would have been required to do had the loan been restructured via the corporate debt restructuring (CDR) cell. However, analysts at Crisil recently cautioned such refinancing would mask the true picture of asset quality and warned that about 15% of these assets might slip into NPA territory over the longer term. They estimate Rs 80,000 crore of assets could be refinanced under the scheme this year.
“We believe that the 5/25 scheme will replace the restructuring tool earlier available to banks especially for large loans. Restructured assets were visible in the reported numbers of banks. But now, the assets that will be part of the 5/25 scheme, they will not be necessarily be reported by banks and could get masked in the NPAs,” Crisil observed.
Since December 2014, the RBI has allowed banks to refinance existing infrastructure projects under the 5/25 model provided the projects have commenced commercial operations. The central bank said in a notification: “Banks may fix a fresh loan amortisation schedule for the existing project loans once during the lifetime of the project, after the date of commencement of commercial operations without this being treated as restructuring.”
Till April, banks were resorting to restructuring stressed loans via CDR since the RBI allowed such assets to be categorised as ‘restructured standard’, which meant banks needed to make a provision of just 5% and not a minimum of 15% as is required for an NPA. However, that forbearance has been lifted from April 1.