Govt may seek SBI Capital Markets’ aid to resolve stressed power assets
SBI’s investment banking arm SBI Capital Markets to help devise a strategy for the resolution of stalled power projects
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The National Democratic Alliance (NDA) government is looking to take the assistance of SBI Capital Markets Ltd in its effort to tackle the issue of stressed assets in the power sector.
The investment banking arm of State Bank of India, which will likely get the mandate from state-owned Power Finance Corp. (PFC), will help devise a strategy for the resolution of stalled power projects. Stressed assets in the power sector account for around Rs4 trillion of banks’ Rs10 trillion of bad loans.
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“We are looking at the issue of the stressed assets and are in dialogue with SBI Capital Markets Ltd to help evolve a strategy. Every project will require a unique solution,” a person involved in the exercise said on condition of anonymity.
Some of the issues faced by these projects include paucity of funds, lack of a power purchase agreement, and absence of fuel security. JM Financial Research, in an 8 March note, wrote that its 2016 study of stressed power assets had concluded that of the total 28 gigawatts (GW) generating capacity in question, assets accounting for 14GW were at high risk.
Stressed assets in the power generation sector, where developers have not wilfully defaulted on loans, are likely to be taken over by lenders under a resolution plan being worked out, power minister Piyush Goyal said last month at a briefing on the NDA government’s three years in office.
The strategy being explored involves banks taking over the stressed projects and bringing in state-owned or private entities to manage plant operations efficiently till a buyer is found. REC and PFC are among the largest power sector lenders in India.
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“There is a comfort factor with SBI Capital given that they are a government company,” said another person aware of the development who asked not to be identified.
SBI Capital Markets has been working with the centre and its various agencies on issues ranging from coal auctions to the revival of the debt-laden national airline Air India Ltd. A spokesperson for SBI Capital Markets refused to comment. Queries emailed to the spokespersons for the ministries of power, finance and PFC remained unanswered.
An expert said there were many benefits to the approach being considered by the power ministry. “Issues around each asset are unique, and resolution can be seen as a structuring opportunity to replace old generation, monetize assets, attract international investors, reduce carbon footprint, and to reduce power procurement costs and customer retail tariff,” said Sambitosh Mohapatra, partner, power and utilities, at PwC India.
If all works according to plan, these stressed assets will start generating power to feed a rise in demand from the rural electrification drive, Ujwal Discom Assurance Yojana and the nation’s economic growth.
According to the power ministry, the early indicators of this are already there. “The peak demand met increased from 130GW in 2013-14 to 157GW in 2016-17, which works out to a compound annual growth rate of 6.5 % ...the quantum of ‘power not supplied during peak’ has fallen from 6.1GW in 2013-14 to just 2.6GW in 2016-17, a reduction of 57%,” the ministry said in a 10 July statement.