Mumbai: The striking down of the Reserve Bank of India’s (RBI’s) 12 February 2018 circular, which would have fast-forwarded defaulting companies to bankruptcy court, will now save stressed power assets from immediate liquidation, according to power sector executives. The private sector has 34 stressed projects totalling installed capacity of over 40 gigawatts (GW) and a combined debt exposure of about ₹1.74 trillion, according to a 7 March report by a parliamentary standing committee.
The committee. however, noted that of this debt exposure, ₹34,044 crore of outstanding payments could be linked to changes in government policy on fuel costs, delayed regulatory response and non-payment of dues by state-run power distribution firms (power discoms).
With very few buyers in the market for stressed thermal power companies and with the tight 180-day deadline that RBI had imposed looming over them, lenders would have been forced to take the bulk of these assets to liquidation, where value recovery would have been minimal.
“With the threat of IBC proceedings mitigated, power companies and lenders will now have some breathing space as well as flexibility to restructure debts in a manner which ensures continuity and value maximization for lenders as well as power companies," said Ashok Khurana, director general of Association of Power Producers (APP). APP was one of the petitioners at the Supreme Court seeking a quashing of the RBI circular. “This provides much-needed relief to power companies which had been taken to NCLT (National Company Law Tribunal) under the RBI circular, including assets of RattanIndia, GVK, IL&FS and Coastal Energen," he said.
“Over the last few years, we’ve seen the NCLT process take as long as 500 days for resolution, so the RBI mandating 180 days before NCLT was too less. We were against the impracticalities of these conditions," added Khurana.
The RBI circular directed banks to refer defaulters to bankruptcy courts if they were unable to find a resolution plan for stressed accounts where the aggregate outstanding was more than ₹2,000 crore within 180 days.
A senior finance executive at a power firm said, requesting anonymity, that talks for resolutions outside of NCLT would now have a better chance of succeeding. “Earlier, banks only had 180 days to find a resolution, which was very short. Now, probably more resolutions outside NCLT have a chance of firming up, and if not, then the resolution will happen at NCLT. Either way, it is good for the sector," he said.
Vishrov Mukerjee, partner at law firm J Sagar Associates, who represented several stressed power projects as well as APP, said the apex court’s judgement has caused several grey areas.
“What happens to the existing restructuring processes with several power assets—that is probably the most important aspect that will need to be looked into now. In a number of cases where the transfer of ownership to lenders has already taken place, under the SDR (strategic debt restructuring) and S4A (Scheme for Sustainable Structuring of Stressed Assets), all that happened before the 12 February circular won’t be impacted. Even some resolutions after the 12 February circular came into effect, for instance, some one-time settlement offers, are likely to go through depending on the parties involved. For those taken to NCLT, in those cases, the proceedings have been quashed. It is likely that RBI will issue a new circular on stressed assets which will come alive in the next few days," said Mukerjee.
Mint reported in January that lenders to seven troubled power projects were close to resolving loans totalling over ₹74,000 crore outside the bankruptcy framework, including by selling Coastal Energen Pvt. Ltd (debt of ₹6,132 crore), KSK Mahanadi Power Ltd ( ₹17,194 crore) and GMR Chhattisgarh Energy Ltd ( ₹8,174 crore) to the Adani Group, under the Samadhan scheme.
RattanIndia Power Ltd’s lenders were prepared to settle for a haircut of around 50% of the distressed power firm’s outstanding loans of ₹7,108 crore. SKS Power Generation (with loans of ₹4,801 crore) has been acquired by Hong Kong-listed Agritrade Resources. Tata Power Co.-backed Resurgent Power Ventures is close to finalizing an acquisition of Jaiprakash Associates Ltd’s Prayagraj Power Generation Co. (with loans of ₹11,000 crore).