State-run gas utility GAIL (India) Ltd has proposed to assume the debt of about ₹4,000 crore of Konkan LNG Pvt. Ltd in lieu of receiving the lenders’ stake in the company for free, said two bankers aware of the discussions.
The talks are at a nascent stage since the proposal requires an independent valuation of the stakes held by the lenders in Konkan LNG, said the first person cited above.
“GAIL has said that it will take over the entire debt of Konkan LNG at a 15-20% discount on the total outstanding, but our equity in the plant should be transferred for free," the banker said, requesting anonymity.
Gail owned 25.5% in unlisted Konkan LNG in March 2018, according to a shareholding document from the registrar of companies (RoC). Another RoC document showed more than 260 million shares were issued to GAIL in August last year. The offer for issue of these shares on rights basis was made to existing shareholders on 24 July 2018. Only GAIL subscribed to 260 million shares, the document showed.
An undated shareholding pattern of Konkan LNG, available on its website, showed that GAIL now owns 56.71% of the paid-up share capital. The lenders—IDBI Bank, State Bank of India, ICICI Bank, Canara Bank and IFCI—collectively own 20.62%. Others include NTPC Ltd (14.82%) and Maharashtra State Electricity Board Holding Co. (7.85%). If approved by lenders, GAIL’s stake in Konkan LNG will increase to 77.33%.
Another banker, speaking on the condition of anonymity, said that taking a 15-20% haircut on their loans will be feasible; however, they are not too sure about the free equity transfer proposal. “Following fresh equity infusion last year, GAIL has now become the largest shareholder in Konkan LNG and since banks are anyway exiting non-core businesses, the transaction will make sense if we are paid in exchange of our shares," he added.
Emails sent to GAIL and the lenders remained unanswered till the time of going to press.
An analyst tracking GAIL said that one possible reason for the company to take over the extra debt from lenders is to get full control of the plant and complete the breakwater facility pending for several years. With lenders, being part of the consortium, it would have been difficult to achieve a consensus on the financial closure of the project, the analyst said. “The offer to get the equity for free would not have been feasible without the offer to take over debt," he said.
The demerger of the LNG business of Ratnagiri Gas and Power Pvt. Ltd (RGPPL) into a new company, Konkan LNG, was filed for approval with the National Company Law Tribunal (NCLT) on 23 December, 2016. It was finally approved by the National Company Law Appellate Tribunal (NCLAT) on 11 March, 2018.
The debt restructuring proposal of RGPPL included bifurcation of existing loans of ₹9,000 crore into RGPPL and Konkan LNG. About ₹5,000 crore loans to RGPPL was then split into sustainable ( ₹2,000 crore) and unsustainable debt ( ₹3,000 crore) with the latter being converted into cumulative redeemable preference shares.
The sustainable loan was given a longer repayment term and interest rates cut from 13% to 9%. Meanwhile, Konkan LNG received additional loans of ₹1,200 crore to build the breakwater facility. At present, the LNG facility is not an all-weather terminal since there is no breakwater, because of which, no cargoes are received during the monsoon period. The LNG terminal is designed to supply 2.1mmtpa of re-gasified LNG to RGPPL and the balance 2.9mmtpa is for re-gasification and transportation to catchment gas markets through a pipeline network.
RGPPL, earlier known as Dabhol Power Co., was conceived in the 1990s and originally promoted by the now-bankrupt US energy firm Enron Corp. The asset was transferred to the government in mid-2005, and the project was fully commissioned on 31 March 2010.