Firm says it supports a decision by a consortium of nine creditors to put the project through a strategic debt restructuring exercise
The Lanco group, on Monday, confirmed that it is in talks with strategic investors to sell its 500 megawatt (MW) hydro-electric power plant in Sikkim, as part of an effort to consolidate its businesses and reduce debt.
In the interim, the infrastructure firm said in a statement that it supported a decision by a consortium of nine creditors to put the project through a strategic debt restructuring (SDR) exercise, since it was taking a long time to bring investors on board.
“The SDR will ensure timely completion of the project which can create value to all the stakeholders," Lanco said in a statement. Under the central bank’s SDR norms, released in June, banks can convert part of their debt into equity and take majority control of a defaulting firm.
According to the statement, Lanco Infratech Ltd’s subsidiary Lanco Teesta is setting up a 500MW hydropower project on the river Teesta in Sikkim with the initial project cost estimated at about ₹ 3,000 crore, with a debt equity ratio of 80:20, comprising ₹ 2,400 crore of debt and ₹ 600 crore of equity.
As of 30 June, the firm had brought in ₹ 670 crore as equity and the lenders to the project had advanced ₹ 2,260 crore as debt, according to Lanco. However, the project was delayed by multiple reasons beyond its control, the statement said.
“During the course of execution, the project has encountered challenges in terms of adverse geological conditions and severe earthquake. These force majeure issues resulted in cost and time overruns," Lanco said in the statement.
The SDR is a direct response of the ballooning cost overruns and Lanco’s inability to repay debt. The group had total debt of ₹ 37,526 crore as of 31 March.
Two bankers from the lending consortium confirmed that majority lenders had given their consent to ICICI Bank Ltd, the lead bank in the consortium, to convert debt into equity.
ICICI Bank now has 18 months to decide on how to proceed with SDR and also to find a new buyer for the project.
“ICICI Bank may choose to bring in a third-party turnaround specialist into the picture till then. They will have to take a call on how to proceed," a senior public sector banker who was part of the talks said on condition of anonymity.
On Monday, The Economic Times first reported that bankers will convert ₹ 780 crore worth of debt to equity in Lanco Teesta Hydro Power.
“Lenders will want to try out the powers under SDR with smaller cases so that they get a hang of how things work, before they take larger risks," said Abizer Diwanji, partner and national leader (financial services) at consulting firm EY.
While SDR is a great tool for bankers, certain aspects, such as finding a buyer within a fixed time and tax implications after a change in management, need to be clarified, said Diwanji.
The group has been looking to divest its power assets in order to generate cash for its other business. In April this year, Lanco completed the sale of its 1,200MW coal-fired Udupi power plant in Karnataka to Ahmedabad-based Adani Power for ₹ 6,300 crore. However, in May, Lanco had decided to put its asset divestment plan on hold owing to low valuations.