The combined outstanding regulatory assets for the thermal power sector stands at Rs 76,963 crore, according to India Ratings and Research, which sees a potential to securitize these receivables through bonds.

“As per the latest tariff orders till FY2019, the total future regulatory assets outstanding and approved by all the State Electricity Regulatory Commission (SERC). operating in India amount to approximately Rs 76,963 crore,” India Ratings said in a report on Monday.

Of these, the report suggested, 97 per cent of the outstanding regulatory assets are due to state distribution companies, while the remaining are due to private and independent power producers like Reliance Infrastructure, Tata Power and Tata Steel. Recoverable costs arising due to a significant variance in the generated tariff based on actual cost of power consumption and the estimated tariff for the annual revenue requirements initially approved by the SERC are recoverable through a regulatory asset component in future tariff orders.

State-wise, the report suggested, Uttar Pradesh, Maharashtra and Jharkhand - account for approximately 87 per cent of the current regulatory assets market.

India Ratings expects a two per cent growth for the Indian corporate bond market if distribution companies chose to securitise these pending regulatory assets. “This shall help the Indian corporate bond market, which had an outstanding of Rs 39.6 trillion as of January 2019, grow by 2%,” the agency said.

The report further added, “Mutual fund investors may consider this instrument to be a type of alternative investment whose cash flows are highly secured and guaranteed by state government electricity authorities.”

So far the trend of securitizing regulatory assets has not been encouraging. “In March 2014, India Ratings had rated a transaction worth Rs 1000 crore of bonds (part of a Rs2725 crore debt programme) secured by regulatory assets recoverable by the distribution arm of Reliance Infrastructure,” said Arijeet Maji, Senior Analyst, Global Infrastructure Ratings, India Ratings and Research.

In a similar strategy to monetize pending dues, Indian companies are experimenting with litigation funding. Infrastructure developer HCC in March entered into an agreement with Blackrock for its pending arbitration claims. Officials at India Ratings expect regulatory assets to provide a higher security compared to litigation claims. “Litigation funding as per Ind-Ra is quite volatile in nature; however for regulatory assets, it is of relatively stable nature typically approved by the electricity commission before the bonds backing these assets are issued, along with the period of amortisation of the regulatory assets and associated carrying costs also being mentioned in the tariff order,” Maji added.