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

Bankers have been able to approve only about four or five stressed power assets out of 34 earmarked for resolution.

September 07, 2018 / 07:32 PM IST

A majority of 34 stressed power projects earmarked for a special government push towards resolution will end up in the National Company Law Tribunal (NCLT), sources have told Moneycontrol.

This is after bankers were able to approve only about four or five stressed assets, ahead of the Reserve Bank of India’s September 11 deadline to either resolve the bad loans or refer defaulting companies to the bankruptcy court.

Once referred to the NCLT, assets under defaults are taken over by an insolvency professional, who tries to line up a buyer for the asset within 270 days. The buyer has to be approved by a committee of lenders. Failure in this results in the asset being liquidated.

The wheels were set into motion when the RBI issued a circular on February 12 outlining a 180-day deadline for NPA resolution.

Experts said the failure outlines the tough job faced by bankers in trying to resolve bad loans outside the bankruptcy court.

To be blamed are infeasibility of projects, disagreement among bankers, and the sheer lack of risk appetite at the current stage of the business cycle.

Not to mention that, as pointed out by an industry executive, any resolution plan executed outside the NCLT lacks the court’s seal of authority and is not as transparent.

But at the NCLT, the projects -- the 34 projects have loans of about Rs 1.77 lakh crore -- could face potential value erosion of up to 60 percent, according to some estimates.

Of the 34 stressed assets, 20 have got power purchase agreements (PPAs) signed for less than 50 percent of their capacity. Worse, linkages that ensure supply of coal to plants are allowed for long- and medium-term PPAs.

“Thus, most of the power plants don’t have adequate fuel supply arrangements, leaving them with no alternative than to go for costly e-auction [to buy coal],” brokerage Jefferies said in a note last month.

A pilot scheme launched by the government to secure 2.5 gigawatts of PPA for stressed assets received a limited response, finding takers for only 1.9GW because of restrictive pricing clauses.

Within the 34 projects, banks led by SBI came together in June to try and resolve 11, which were complete or near complete, under a so-called Samadhan scheme.

These plants, having a total capacity of 12,640 megawatts, are Lanco Anpara Power, Jaypee Power Ventures (Nigrie), KSK Mahanadi Power, Coastal Energen, Avantha Power, Jindal India Thermal Power, SKS Power Generation, Prayagraj Power Gen, RKM Power Gen, IND Bharat Utkal and Ideal Energy.

Projects under that plan did not find any better luck than the others.

"Of the 11 assets, four have been taken to NCLT. Six have got SBI's approval but are awaiting a nod from other banks. The last remaining one is not resolved. So it will be taken for insolvency," a senior SBI executive told Moneycontrol.

"So about 7-8 are likely to go (to the NCLT) now. If the rest of the assets do not get consensus, they might too face insolvency proceedings," added the SBI executive.

The chief of a large public-sector bank said that it had been difficult to get all banks to approve to any one plan, adding that at the most, six-seven accounts could be resolved. “By the current market trends, there is no value that we are recovering from most of the assets. We need at least another 6-12 months to revive most of them.”

The bank chief, however, hopes there will be better luck at the NCLT. “Even after they go to NCLT, there is a provision of obtaining consensus and opting out of the insolvency proceedings," he said.

Beena Parmar
Prince Mathews Thomas
Prince Mathews Thomas heads the corporate bureau of Moneycontrol. He has been covering the business world for 16 years, having worked in The Hindu Business Line, Forbes India, Dow Jones Newswires, The Economic Times, Business Standard and The Week. A Chevening scholar, Prince has also authored The Consolidators, a book on second generation entrepreneurs.
first published: Sep 7, 2018 12:26 pm