Despite all their trials and tribulations, private sector power companies are making a beeline for stressed power plants. JSW Energy Ltd and a Tata Power Co. Ltd-backed fund are vying for a power plant. Adani Power Ltd, its poor financial condition notwithstanding, too has thrown its hat into the ring, an analyst said on condition of anonymity.

Reports also indicate that other private sector groups such as Vedanta and asset reconstruction firms have shown interest in acquiring stressed power plants. Another analyst aware of the matter said large investors from overseas are awaiting the resolution processes to place bids.

Buyers’ interest should provide comfort to the lenders of stressed power plants, who otherwise are staring at large write-offs. What is intriguing, though, are the bids from listed private sector firms who are still suffering from the wrong bets they had made and from unhindered capacity build-up in the domestic market.

What could be the reason for the keen interest in acquiring stressed power assets? The answer is growth, which has been stunted for conventional power generators. Deepak Agrawala, executive director-investment banking (industrials, infrastructure and utilities) at Elara Capital (India) Pvt. Ltd, says a power generator can grow by building new plants or acquiring them or diversifying into areas such as renewables. For large listed utility firms, the ongoing resolution of stressed thermal power assets offers an excellent inorganic growth opportunity.

Considering the prolonged land acquisition and approval process and construction period, it can take as much as five-eight years to set up a new greenfield coal-fired power plant and generate cash flows, adds Agrawala. Far better, in the circumstances, to snap up assets in a fire sale.

Swarnim Maheshwari, an analyst at Edelweiss Securities Ltd, echoes the views. “You are taking this call for the next 15-20 years (about long- term growth), not for the next one-two years," he says.

Indeed, given the stressed valuations—the average haircut for lenders is pegged at 30-50% with some going up to 70%—bidders may well be taking calculated risks. A significant part of the initial batch of the stressed power plants that are expected to go through resolution are those that have either completed construction or have partial power purchase agreements. Once the debt gets rightsized, the operating losses should fall considerably.

True, the buyer will have to wait for electricity offtake to pick up. But with demand rising steadily and no new capacities being built, the wait may not be too long. Much depends, of course, on the price and the buyer’s ability to sort out fuel and operation issues of the plant.

But once these issues are sorted, the companies will have steady revenue flows—the benefit of the utility business. The only question is whether the lenders have the ability and willingness to accept such write-offs.

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