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Last Updated : Mar 20, 2018 03:20 PM IST | Source:

Battle for power: NTPC gearing up for acquisition of stressed power assets

Power is one big sector that started to panic as there is substantial stressed capacity in the sector.

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With the banking sector at the centre of discussion over rising NPAs and their inability to recover money, it is getting difficult for companies who have defaulted on their loans to buy more time. In a recent circular, the RBI has made it clear that stressed accounts with more than Rs 2000 crore exposure needs to be resolved within 180 days, starting 1 March 2018. Else, these companies shall be dragged to NCLT (National Company Law Tribunal) within 15 days.

Power is one big sector that started to panic as there is substantial stressed capacity in the sector. Industry estimates that close to 75000-80000 mw of power generation capacity is stressed because of the lack of fuel, offtake, under recoveries and other issues. This is estimated to have debt of over Rs 4 lakh crore under stress and contribute significantly to NPA for the banking system.

NCLT: The Inevitable  


Some of the power plants like KSK Energy’s Wardha plant, Adani’s Mundra plant, Lanco, Jaiprakash Power and few others are operating at around 40% PLF (plant load factor) and gas based plants like Torrent, GMR and GVK remains idle.

In many of these cases, the plants have become financially unviable as a result of accumulated losses and interest costs. The cost overrun has made them uncompetitive and at the current operating cost structure they cannot match the prevailing power tariffs. SEBs and other power buyers have shifted to spot market cancelling the long term PPA signed at higher prices adding to their woes.

Since there is very little or negative equity left in many of these projects, promoters, in most cases wants to exit. However there are no buyers for these stressed assets because of the high operating cost and financial obligations which are beyond the servicing capacity of these assets.

In most likely scenario, these assets will be soon dragged to NCLT and thus auctioned to the suitable buyers.

Now lenders themselves such as PFC, REC and others are joining hand to form a company along with NTPC to bid for these assets. NTPC has already received bids for projects about 6500 mw

If this happens, some of these assets could be saved and could become viable in a time bound manner. But in most cases the banks and the lenders would have to still take hair cut on their exposure.

For the owners of these assets, even if they get nothing it would still be blessing because of the debt and other obligations they have. Earlier, Tata Power and Adani Power had offered 51% stake in the Mundra-based UMPPs for a nominal Rs 1.

"There is no equity left in most of these cases and whatever capital is left belongs to the banks. So the auction is in the interest of banks and lenders who would like to recover the money stuck in these plants," said Santosh Hiredesai, who is tracking the sector at SBICAP Securities.

Each of these stressed cases have their own issues. Some of them are struggling for PPAs (power purchase agreements) while others on account of cost overrun and availability of the fuel. This is precisely the reason that during the auction of these assets the bidding may differ on a case to case basis with the established players like NTPC having an edge.

“NTPC is best placed because of the capability, strength of balance sheet and PPAs. Company is already having long terms PPAs and has got a huge pipeline of constructing of greenfield projects. Rather than constructing green field project at about 7 crores per mw if it manages to gets assets say at Rs 4 crore mw in the auction it would be a huge advantage.

However given NTPC’s criteria of considering only those plants with tariffs lower than its FY17 average tariff of Rs 3.2 per unit, we estimate only bids at an enterprise value below Rs 3.5 crore per MW will be viable,” said Santosh Hiredesai.

Bankers and the lenders would look for higher valuations to recover the maximum value. On the other hand, the buyer would aim to generate sufficient return on investment justifying the risk involved. In most likely scenario, it will be the bankers who will have to take the haircut.

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First Published on Mar 20, 2018 03:20 pm
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