REC may take over Abhijeet Group project to recover dues
The move could set a trend if REC or other financiers start doing the same with other projects to which they have lent money
New Delhi: Rural Electrification Corp. Ltd (REC) may acquire the first phase of the Abhijeet Group’s 1,080 megawatts (MW) Jharkhand power project to recover loans, an extraordinary move, especially for a state-owned lender.
This could set a trend if REC or other financiers start doing the same with other projects to which they have lent money. REC and Power Finance Corp. Ltd have loaned Rs.6 of every Rs.10 of debt of power utilities.
Such a move could unwind some bad loans and free banks to resume lending to power companies, helping the cause of electricity generation in India, analysts say.
Bad loans to the power sector constituted 20.21% of the total bad loans of Rs.11,409 crore to infrastructure in the banking system for the fiscal ended 31 March.
The total gross outstanding loans of the Indian banks to the power sector was Rs.4,03,822 crore on 31 March. The power sector’s gross bad loans rose from Rs.802 crore in March 2009 to Rs.2,306 crore in March 2013.
REC’s move concerns the Abhijeet Group’s project in Latehar in Jharkhand, where the REC is the lead lender for the 540MW first phase.
The group has been in the news for allegedly benefiting from the irregular allotment of coalfields, a controversy that continues to roil the United Progressive Alliance government.
The group has sought to restructure its debt under the Reserve Bank of India’s (RBI) corporate debt restructuring (CDR) facility.
“For the Abhijeet Group’s Jharkhand project, we have held meetings with Bhel (Bharat Heavy Electricals Ltd) and the project’s management. According to the CDR report, phase one of the project is feasible. We are the lead lenders for phase one. We plan to complete the project with direct payment to Bhel and have initiated talks with NTPC to run the project once it is completed,” said Rajeev Sharma, chairman and managing director of REC. “This will help us recoup our investments.”
The first phase was stuck on account of non-payment of dues owed to government-run power equipment maker Bhel.
REC says the best way to recoup its loan will be to generate electricity.
“We will take over the project. The right of acquisition is always there in the lenders agreement. They (Abhijeet Group) will be on the board, but we will run the project. How will this be done has to be worked out,” Sharma said. “The primary importance right now is to complete the project. The plan with NTPC has not been finalized. Only initial talks have been initiated with them.”
This is “not so true”, an Abhijeet Group spokesperson said in an emailed response. The spokesperson referred to the CDR application and said State Bank of India (SBI) has, after a study, found the project viable and suggested bringing in a strategic investor.
“We are in the process of identifying a strategic investor who will be investing the required equity,” the spokesperson added.
REC’s plan comes in the backdrop of RBI governor Raghuram Rajan’s recent warning to errant promoters. In the case of “restructuring” of loans, “the pain has to be borne fairly”, Rajan said in an interview to Mint on 9 October.
CDR was introduced in 2001 to help nurse struggling companies back to health. As part of the restructuring process, banks lower interest rates, increase the moratorium for payment of dues, and take a hit on their books.
An expert welcomed REC’s move.
“It will be good for the banking sector if lenders step in and substitute the sponsors to complete and operate suspended projects, else we are staring at large NPAs (non-performing assets) from the infrastructure sector projects,” said Debasish Mishra, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, an audit and consulting firm.
“All non-recourse lending agreements have step-in rights for the lenders or their nominees (acceptable to the authorities) to remedy the termination event. This is to protect the loan, obligations of the project and payments due to suppliers. Even the existing Case-1 and Case-2 bid documents have such provisions for sellers event of default, where lenders have the right to seek substitution of the seller for the residual period of the power purchase agreement, for the purposes of securing the payments of their debt and performing the obligations of the seller,” Mishra added.
A Bhel spokesperson asked Mint to contact REC for comments, saying the project has been on hold for a year.
While REC is the lead lender for two units, SBI is the lead lender for the remaining two. REC has sanctioned around Rs.2,000 crore for the project and has already released Rs.650 crore.
An executive at NTPC Ltd, India’s largest power utility, confirmed the move to get the company to run the project, but termed the talks as “informal”.
An NTPC spokesperson said she wasn’t aware of any such development.
The Abhijeet Group spokesperson claimed that the work on the project was proceeding apace.
“The project is under implementation, having achieved the overall progress of 95% in Phase I and 66% in Phase II,” he said. “The expected date of commissioning of Phase I is December 2014 and Phase II August 2015.”