Mumbai: Lenders to India’s stressed coal-based power projects are chasing one-time cash settlements to recover their long-pending loans even at a substantial cut on their dues. Banks are racing against time to avoid a potentially long-drawn insolvency process as all such defaulting projects will proceed for liquidation after 26 August following a recent circular by the Reserve Bank of India. It has led to a rush among lenders to discuss with various parties, including domestic power producers and private equity funds, on exiting the projects.
Banks are pursuing one-time settlements (OTS) in KSK Mahanadi Power, RKM Powergen, SKS Power and Avantha Group’s Jhabua Power Project, three people, who didn’t want to be named, told Mint. In addition, the promoters of GVK Power and Infrastructure are in talks with lenders on a restructuring package, the firm said in its March quarterly results.
“Bankers are exploring OTS options or resolution plans for a majority of stressed power projects and have received multiple bids for some of them,” said one of the people close to the development. “Under the Parivartan scheme, many bankers saw their loans converted into equity in these projects. In some of these, like with GMR’s Chhattisgarh plant, lenders are majority equity holders. Now, under OTS, either the existing promoter or an outsider will bid for these projects, giving banks an upfront lumpsum and a complete exit route.”
“I think banks are willing to take up to a 50% haircut on loans,” said the person, who handles some of the proposals.
He said bids were received in the past two weeks for KSK Energy, SKS, Jhabua power plant, either under the resolution option or as a one-time settlement. “These bids have come in from domestic power producers and a couple of Asia-Pacific private equity funds,” he said.
The person said following a 12 February circular of RBI offering OTS as a possible resolution option for defaulting power sector dues, banks have taken 1 March as reference date for such loans. “According to the circular’s timeline of 180 days, this gives banks until 26 August to resolve bad loans, after which they head into liquidation,” the person said.
Emails sent to the current promoters of the four power projects named above remained unanswered at the time of going to print.
In an interview with Mint last Tuesday, Rajnish Kumar, chairman, State Bank of India, said power firms are likely to face severe “cash-flow issues” once admitted for insolvency as their power purchase and fuel supply agreements are likely to be terminated on being declared insolvent. So, lenders are trying to resolve a few power sector assets independently, and will use the bankruptcy court as a last resort.
“We will follow a transparent process through the Swiss challenge method,” Kumar said. The Swiss challenge method is a process where, if the bank receives an unsolicited bid for an asset, it makes the details of the bid public and invites other interested parties to match or exceed the bid before finalizing the sale. “We have constituted an oversight panel within the bank where eminent outsiders like retired high court judges, retired vigilance commissioner will look into the integrity of the process. Ultimately, what matters is they should a have a robust mechanism to discover a transparent price,” Kumar said.
N.B. Gupta, director, finance at Power Finance Corp., said over the phone that the public sector lender is keen on pursuing one-time settlements for its outstanding loans to stranded power plants. “We have different proposals that are coming to us for different projects. Right now, no final decision on this has been taken,” he said.
Gupta said the settlement offers are “usually coming from the promoters or competing power producers and we are evaluating these offers.”
“In GVK, for instance, we didn’t take a haircut on the total amount but we have extended the repayment period. We are evaluating which other proposals are suitable,” he said.