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Aditya Birla, Kotak backed ARCs among 12 interested in Rs 1,597 crore SBI loan to Coastal Energen

Investors may be lining up for stressed thermal power assets on expectations of favourable valuations during acquisitions.

September 16, 2021 / 09:56 PM IST

Aditya Birla Asset Reconstruction Company, Asset Reconstruction Company of India, Kotak Mahindra Bank-backed Phoenix ARC and JM Financial ARC are among 12 entities that have expressions of interest to acquire debt of distressed thermal power company Coastal Energen from State Bank of India, people aware of the matter said.

SBI invited EoI for the Rs 1,597.38 crore loan advanced to Coastal Energen after failing to find a resolution outside the National Company Law Tribunal, said one person.

The bank set a reserve price of Rs 796.25 crore, equivalent to about 50 paise for every rupee, according to the sale document on the bank’s website. An e-auction is scheduled for October 14.

Others who submitted expressions of interest by the September 9 deadline were ASREC (India), Omkara ARC, UV ARC, Prudent ARC, Alchemist ARC, Invest ARC, Maximum ARC and Paras ARC, the people said.

Aditya Birla ARC, Arcil, Phoenix ARC, JM Financial ARC and Deutsche Bank did not respond to requests for comment.

Close

Earlier this month, Varde Partner-Aditya Birla ARC acquired Rs 1,720 crore of debt of distressed thermal power producer KSK Mahanadi Power from Punjab National Bank for Rs 752.28 crore, as reported by Moneycontrol.

India’s thermal power sector faces structural issues related to lack of progress in signing new long-term and medium-term power purchase agreements (PPA), subdued tariffs in the short-term market and payment delays by state distribution utilities, according to rating company ICRA.

Outlook not positive

Although electricity demand in India is estimated to grow 6 percent in FY22 on the back of a pick-up in economic activity and the relatively lower impact of the second wave of the pandemic, the outlook for thermal power generation has not yet turned positive, ICRA said.

“This is partly due to subdued thermal plant load factor, in some cases PPAs are not signed at all or are for short term, modest tariffs and continued delays in receiving payments,” said Sabyasachi Majumdar, group head and senior vice president at ICRA, a unit of Moody’s Investors Service.

On the positive side, the liquidity situation of some independent power producers has improved due to payments made under the liquidity support scheme by the Centre in March 2021, he said.

“Under the given circumstances, if investors are queuing up for such distressed assets, it is more likely to be driven by expectations of favourable valuations during acquisitions,” said Majumdar.

No buyer

Coastal Energen, an unlisted company promoted by the Ahmed Buhari family, operates two coal-based power units of 600 MW each in Tamil Nadu. It had Rs 7,794 crore of outstanding loans, according to a report by ICRA in May. The Buhari family and associates own 49 percent of the company. The remainder is held by lenders that invoked pledged shares in 2015 following a default in loan payments.

One power unit, which imports coal, has a 15-year supply agreement with a distribution company while the other is yet to find a buyer.

Delayed payments from Tamil Nadu Generation and Distribution Corporation and the absence of a buyer for power from the second unit led to a stretched liquidity position, according to the ICR report.

Early this year, Buhari approached lenders with an offer to settle the company’s loan in partnership with Deutsche Bank and Ares SSG Capital, but the talks did not progress because the promoter did not make a binding offer, the first person said.

In 2019, a consortium of Deutsche Bank, Ares SSG Capital and the Buhari family offered Rs 3,000 crore to acquire the 51 percent stake held by the lenders and the entire debt of the company. The deal, which was conditional on all lenders agreeing, equated to 38 paise to a rupee, the person said. The promoter had even deposited Rs 150 crore, 50 percent of his contribution, with SBI, the person said.

However, the transaction did not close – initially due to a delay in getting approval from all the lenders. By the time all the lenders agreed to the proposal in March 2020, the Enforcement Directorate started investigating the company for money laundering and froze the company’s assets, the person said.

Before this, in 2018, a proposed offer by Deutsche Bank and Edelweiss ARC to jointly acquire the company’s debt and the lenders’ 51 percent stake for Rs 3,200 crore fell apart after the lenders declined to relinquish their entire stake, a second person said.
Sangita Mehta
first published: Sep 16, 2021 02:14 pm
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