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Bankers struggle to resolve power sector assets outside insolvency process

By Beena Parmar

Beena Parmar Moneycontrol News

Bankers are struggling to arrive at a consensus on the resolution of several stressed power sector assets outside of the insolvency proceedings. They fear large loan losses or haircuts in the sector given the lower valuations.

“Negotiations are going on but we are yet to finalise the pricing as the current levels demanded by buyers will lead to huge hair-cuts for us. Even if the assets are pushed to NCLT (National Company Law Tribunal), the assets will not fetch much value,” said a senior banking source.

A haircut is a banking parlance used for losses on the principal loan given to the borrowers.

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Another banker said they are also awaiting the Supreme Court verdict starting November 13 when it will hear a case filed by the power producers' association against the Reserve Bank of India's (RBI) February 12 circular.

In September this year, the Supreme Court granted a stay on the insolvency proceedings faced by power companies and decided to hear all petitions challenging the RBI circular.

The government has already identified 34 stressed assets worth Rs 1.8 lakh crore in the coal-fired power sector.

"In a couple of cases, the lenders are nearing consensus so it is still work in progress and in one case where SBI is the lead, we have given our approval and 3-4 may happen very quickly," said State Bank of India (SBI) Chairman Rajnish Kumar in the post-results conference call on November 5.

Previously, the lenders had suggested it was critical to resolve the stressed power assets before November to retain the value of the assets.

Bankers are attempting to resolve stressed power assets under Pariwartan or Power Asset Revival Focused Warehousing & Revitalisation (Pariwartan) framework, which was one of the resolution mechanisms devised by Rural Electrification Corporation under the guidance of the Centre.

In late October, the apex court allowed three power projects run by Adani Power, Tata Power and Essar Power to renegotiate their power purchase agreements (PPAs) to reflect the higher cost of imported coal.

Power distribution companies (discoms) in Maharashtra, Rajasthan, Punjab and Haryana have signed PPAs with Adani Power, Tata Power and Essar Steel.

The Supreme Court order came after the 34 power producers with a cumulative capacity of over 40,000 MW moved the court requesting it to cancel the RBI's diktat which could push all the power companies to the NCLT.

The companies claim the insolvency proceedings would significantly erode the value of the assets given its stringent deadline norms of 180-270 days.

A 40-60 percent haircut, along with financial safeguards, can resolve as much as Rs 1 lakh crore of debt stuck in coal-based power projects and enhance their viability on a sustained basis," said a report released by rating agency Crisil in October.

With further delays, bankers fear the haircuts on their loans are only set to increase.

Also Read: Majority of 34 stressed power projects head to NCLT after failed resolution push