Power PSUs weigh exit from debt-laden energy-efficiency venture as stress mounts

The company, Energy Efficiency Services Ltd (EESL), is a joint venture owned by state-run NTPC Ltd, Power Finance Corp., Rural Electrification Corp. and Power Grid Corp. of India, which are considering listing its shares on the stock exchanges, said two people aware of the developments.

Listing EESL is part of a plan by the power sector Maharatna companies to exit the PSU that has led India’s energy efficiency programme to reduce carbon emissions and meet the country’s climate change goals.

“The talks are currently in the initial stages for a public listing, including an offer for sale from the promoters. Listing is seen as a better option compared to a strategic sale or a private placement of shares," one person said.

The development comes when the company has been struggling to collect dues from states under key energy efficiency schemes, including the National Street Lighting Programme. According to an official, its total dues are almost ₹4,000 crore. At the end of FY24, it stood at ₹4,315 crore.

EESL noted in its annual report for FY24 that large outstanding dues from various government departments – urban local bodies and power distribution companies – have severely strained its cash flows and hampered growth opportunities by hindering its entry into new business areas.

"In order to finance the ongoing operation and maintenance activities as well as to take care of administration expenses, EESL has to raise short-term working capital loans, which is adversely affecting the profitability of the company," it said.

As of 31 March 2024, EESL’s total outstanding long-term borrowings stood at ₹5,175.69 crore, and its short-term loans were ₹1,893.99 crore, taking the cumulative debt to ₹7,069.68 crore. Investors could weigh the high levels of debt before showing interest in the company’s shares.

Positive aspects

Some experts said EESL’s financial profile may not discourage investors from betting on the company.

“Although its financial performance may not be robust, it has a revenue stream," said MS Sahoo, financial expert and former chairperson of the Investment & Bankruptcy Board of India. “Further, the performance of its promoters may also help in garnering investor interest as the promoters plan a public listing and look at offering their shares too."

Sahoo said that given that it is a government-backed company, it may not be willing to take legal recourse to get its dues, but as the shareholding changes and if private players take over, then the company's approach may be different towards entities that owe it dues.

CareEdge Ratings rated EESL’s long-term loans or facilities of ₹1,108 crore and 1,272 crore as stable in April this year, citing the "strength from its ownership vested completely with strong and Government of India (GoI)-owned large public sector undertakings (PSUs)."

"Ratings also derive strength from EESL’s strategically important role as the nodal agency for implementing various energy saving programmes launched by GoI and involvement of MoP (Ministry of Power) and GoI in formulating EESL’s long-term business plan through board representations and resource mobilisation support with low-cost funding from multilateral funding agencies, which are guaranteed by GoI. Moreover, the cost-plus model followed by EESL ensures adequate returns and a steady annuity-based income stream to the company," CareEdge said.

However, CareEdge said the ratings remain constrained by cash flows of the company susceptible towards counterparty credit risk, considering the weak financial profile of its clientele, primarily consisting of urban local bodies and power distribution companies, leading to a continuous stretch in the receivables positions and high reliance on external borrowings.

Lower revenue

Further, substantial debt-funded investments have resulted in a highly leveraged capital structure, CareEdge said, adding that the ratings are also constrained by a weak operating performance in FY25, with lower-than-anticipated revenue and profitability, resulting in continued net losses.

EESL attributed the 11% drop in its total income in FY24 to the delay in the closure of the streetlight projects. Its total income in FY24 fell to ₹1,176.79 crore from ₹1,315.72 crore in FY23. Its net loss narrowed to ₹459.02 crore from ₹574.26 crore in the previous fiscal on the back of a reduction in the exchange rate variation and an increase in provisions on account of expected credit loss and inventory, among others, as per EESL’s annual report.

EESL’s promoters and the power ministry did not respond to the queries sent on Monday.

"Questions may be sent to promoters since we are not aware of it," an EESL spokesperson said.

NTPC and Power Grid held 39.25% shares each in EESL at the end of FY24, followed by Power Finance Corporation, which held 11.38%, and REC with 10.11%. NTPC and Power Grid increased their holdings from 37.7% each with a cumulative investment of ₹760 crore In FY24. EESL’s net worth was ₹1,496.63 crore as of 31 March 2024.

Under the Securities & Exchange Board of India’s rules, shareholders with 20% of a company are restricted from selling more than 50% of their shares in an IPO, while those owning less than 20% are restricted from selling more than 10% of their total holdings.

The company has six subsidiaries and joint ventures: Convergence Energy Services Ltd (CESL); IntelliSmart Infrastructure Pvt Ltd, a joint venture with National Investment and Infrastructure Fund; EESL EnergyPro Assets Ltd, a UK-based subsidiary; NEESL, a JV with Neev International APS; Energy Efficiency Services Company Ltd, Thailand, a JV with Sun Leisure World Thailand, and Energy Efficiency Services LLC (UAE), a JV incorporated in the UAE.

The plan to list the shares of EESL comes as renewable energy and energy transition-focused companies hit the stock markets. Among them was the ₹10,000 crore initial public offering of NTPC Green Energy Ltd, a subsidiary of NTPC, in November 2024.

SJVN Green Energy Ltd and NLC India's green energy arm are also eyeing exchange listings. Other green energy and component manufacturing companies that have listed their shares in the recent past include Waaree Energies, Vikram Solar, ACME Solar, Premier Energies, Saatvik Green and Alpex Solar. Inox Clean Energy, Hero Future Energies and SAEL are looking to do so.