The new year seems to have brought some cheer to the power sector. On January 1, 2019, the Competition Commission of India (CCI) approved Renascent Power Ventures Private Limited’s acquisition of a majority stake in Prayagraj Power Generation Company Limited (PPGCL). The CCI approved the acquisition of PPGCL’s equity shares and optionally convertible redeemable preference shares by Renascent Power.
This follows Renascent Power signing a share purchase agreement (SPA) with a consortium of lenders led by the State Bank of India (SBI) to acquire 75.01 per cent in PPGCL in November 2018. The SPA was subject to requisite approvals from regulatory authorities including the CCI. The transaction is the result of the stressed asset resolution process initiated by lenders through competitive bidding under the Scheme of Asset Management and Debt Change Structure (Samadhan). Under the scheme, the 17-lender consortium offered the 89.47 per cent stake that it held in PPGCL (post the strategic debt restructuring process under which loans were converted into equity) at a face value of Rs 10 each. In August 2018, Resurgent Power Ventures, which holds 100 per cent stake in Renascent Power, received the letter of intent for 75.01 per cent stake in PPGCL. The deal size is estimated at Rs 60 billion.
Resurgent Power Ventures is a joint venture of Tata Power International Pte Limited (TPIPL), a wholly owned subsidiary of Tata Power, ICICI Bank and other global investors including the Kuwait Investment Authority and the State General Reserve Fund, Oman. TPIPL owns 26 per cent stake in Resurgent Power, while ICICI Bank and other investors hold 74 per cent stake.
PPGCL, a subsidiary of Jaiprakash Associates Limited (JAL), operates the stressed 1,980 MW Bara thermal plant in Uttar Pradesh. JAL won the project from the state government through competitive bidding with a quote of Rs 3.02 per unit. PPGCL entered into a 25-year power purchase agreement with Uttar Pradesh’s discoms in 2008 for 90 per cent capacity and a fuel supply agreement with Northern Coalfields Limited in August 2013 for the delivery of 6.95 million tonnes per annum of coal. The project achieved financial closure in July 2010. The first two 660 MW units were commissioned in February and September 2016 respectively, and the third in May 2017. The project was originally scheduled to be commissioned between October 2013 and July 2014 at a cost of Rs 116.22 billion. The final cost escalated to over Rs 150 billion. The project was delayed due to several issues including financial problems. PPGCL has a debt exposure of Rs 110.86 billion. The latest deal will result in a haircut of about 50 per cent for the lenders.
Significantly, the project is among the first stressed assets to be successfully resolved (under Samadhan) outside the insolvency proceedings or the National Company Law Tribunal (NCLT), after the Reserve Bank of India’s (RBI) February 12, 2018 circular. The RBI circular gave a strict 180-day timeline to banks to agree on a resolution plan in case of a default, failing which insolvency proceedings need to be initiated right away. The stringent deadline and procedure were challenged in various courts by different developers. In September 2018, the Supreme Court barred banks from referring power companies to the NCLT under the RBI circular and directed all related pleas in various courts to be transferred to it. The apex court is yet to start hearing the batch of petitions against the RBI circular.
Earlier, in mid-2018, Samadhan, formulated by the SBI, the Power Finance Corporation and other banking institutions, proposed to cover 11 stressed projects aggregating 12 GW, with a cumulative debt burden of over Rs 800 billion to be resolved outside the NCLT. Under the scheme, the project’s lead lender would appoint rating agencies to ascertain the sustainable and unsustainable portions of the project debt. The unsustainable debt would be converted into equity to be held by the lender, which could then bid it out to developers willing to run the plants. Recent developments indicate that at least half a dozen assets that were previously considered under Samadhan are now expected to find resolution outside the NCLT. Besides PPGCL, SKS Chhattisgarh’s 1,200 MW Binjkote plant (purchased by Singapore-based and Hong Kong-listed Agritrade Resources) is expected to witness resolution by March 2019. Other assets close to resolution are Coastal Energen, KSK Mahanadi Power, GMR Chhattisgarh Energy, RattanIndia Power and Jaiprakash Power Ventures.
Banks have been striving to arrive at a consensus on the resolution of several stressed power assets outside the NCLT, as they fear large loan losses or haircuts in the sector, given the low valuations. While progress has been slow with only a limited number of buyers for assets, at least a handful of the 40 stressed ones identified earlier are expected to be resolved over the next few months.