Discoms can have better buyers than generation companies: RK Bansal

Sources tell CNBC-TV18 that banks have put their stake in Jaiprakash Power Ventures on the block.

In an interview to CNBC-TV18, RK Bansal, Former ED of IDBI Bank shared his views and readings on the same.

We have to see how the debt is restructured, what is the equity value being created. In most of the cases, the debt is more than the enterprise value. So if we restructure the debt then only some equity value can be created, he said.

Already a lot of debt has been converted into equity for JP Power, he added.

Distribution companies (Discoms) are staying away from signing power purchase agreements (PPAs), said Bansal.

Discoms seeing better buyers than generation companies if valuations are good, he further mentioned.

Below is the verbatim transcript of the interview.

Latha: We have reported a lot of exclusive stories on how there is a bunch of buyers for all the steel National Company Law Tribunal (NCLT) candidates, what about power? JVPL is not quite a NCLT candidate but will this power stake find buyers?

A: It is a question of valuation. There is a buyer for anything depending on the valuation. So we have to see how the debt is restructured, what is the equity value being created. Today if you look at most of these cases, debt is more than the enterprise value. So unless we restructure the debt then only some equity value can be created. There are issues in power sector, sector specific issues which need to be understood, one is PPA, the mines, coal allocation.

Latha: The equity valuation was reduced to Re 1 by Adani Power and Tata Power. We haven’t seen Gujarat Urja Vikas Nigam Ltd (GUVNL) come and bite immediately, what about JVPL, do you think reducing equity value is enough or should there be a substantial debt haircut?

A: Just by reducing equity value, doesn’t mean anything. When the debt is more than the enterprise value, equity value is virtually zero and that is the case with many of these cases. There are issues with the listing issues also that many of these companies are still listed and they will keep on getting traded when the equity value is virtually not there. But that is a different issue beyond my jurisdiction, so I am not commenting on that.

The shareholders will keep on buying sometimes these shares thinking that share price is going up or whatever, that is still an issue.

Reema: In the first case which was tried under the Indian Bankruptcy Code (IBC), which is the auto ancillary company, the lenders had to take a 94 percent haircut. In the case of JPVL or JP Power, what could be the extent of haircut because as you rightly pointed out, it all boils down to the valuation?

A: As of now – I am not going into case specific but as such I think JPVL already a lot of debt has been converted into equity and already some discussions were going on. That some more debt maybe has to be converted either into equity or some other instruments, which can take care of debt restructuring but finally it depends on whether the company is able to get PPA or able to get coal linkages then only the overall plant – as of now, the demand for power is somewhat less. So in that sense state Discoms are not signing PPAs. So you cannot judge today at what level plant is viable.

Latha: Coal linkages are falling in place, it is PPAs that are a problem. So unless there are PPAs, you don’t see any of the plants getting sold or you see only plants with PPAs getting sold?

A: There is value for everything. So finally if the buyer says that okay, I want debt at this level to be restructured and he is taking a call that he will be able to take PPA and coal allocations and demand will pick up in future. So there can be value in that sense.

For full interview, watch accompanying video...