CRISIL views on Cabinet approval for SEB restructuring

According to Pawan Agrawal, Senior Director, CRISIL Ratings, “The Cabinet approval for restructuring is nothing short of a lifeline for state discoms. In the short term, this will ensure the resumption of much-needed flow of credit for discoms, and as a result, provide a boost to the entire supply chain of equipment and power suppliers as well as lenders to the sectors. In addition, there will be clear structural positives that should enhance the longer-term viability of the distribution sector, improving their profitability and restoring lenders’ confidence in them. Also, this will lead to cumulative savings of Rs.60-70 billion in interests for the discoms.”

“However, the desired impact of this restructuring will not be realised unless a broad-based political consensus is achieved to implement the much-needed tariff hikes, a timely and adequate financial support is provided by the state governments, and the discipline of the regulatory process and disclosures is enhanced. In addition, some flexibility may be needed by state governments to accommodate the additional debt into their fiscal space under the Fiscal Responsibility and Budget Management (FRBM) targets. Further, there may be a need for some regulatory forbearance for banks if the terms of restructuring involve a loss in net present value (NPV) terms – this loss (estimated at Rs.45 billion) may arise from the debt that will be converted into state governments bonds.”

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