Banks unable to sell stake in stressed power assets

Inability of Discoms to sign new PPAs dampens outlook on power sector

Mumbai, September 19:  

Lenders may find it difficult to offload their stake in stressed power assets, even after taking substantial haircuts, due to lack of optimism in the power industry on the ability of State distribution companies to sign new power purchase agreements (PPAs).

A number of struggling power assets, including Jaiprakash Power Ventures Limited (JPVL) of debt-laden Jaypee Group, are looking for new buyers. Lenders, including SBI, ICICI bank, IDBI, Punjab National Bank, and Central Bank of India, are looking to offload at least 30 per cent in JPVL.

While market talk suggests dozens of buyers in the fray, including power players like Tata Power, Adani Power and JSW Energy, none has formally confirmed this. Some of these firms are themselves highly leveraged and looking to sell parts of their own assets. “Even if banks agree to take substantial haircuts, both on equity and debt, with new PPAs remaining a big question, only power players who are sure they will be able to secure PPAs for these projects can emerge as buyers,” said an industry representative on conditions of anonymity.

“Not many of the potential buyers currently are in a position to secure PPAs even for their own assets, therefore buying out other assets may take more than a year’s time.”

No buyer

Earlier this year, lenders were unable to find a strategic buyer for GMR Rajahmundry Energy Limited, a 768 MW gas-based combined cycle power project in Andhra Pradesh which has been under SDR since 2016, within a set deadline.

Leading power players Tata Power and Adani Power have not been able to offload stakes in their troubled thermal power projects in Mundra, Gujarat, despite offering 51 per cent stake at a token value of ₹1. Market experts believe the sale of such assets might turn out a difficult task because the debt often exceeds the enterprise value. “Unless the debt is restructured effectively, no equity value can be created,” said an expert.

Several industry players, none of whom wished to be quoted, suggested that the main roadblock to selling the stranded power assets is the lack of optimism regarding State discoms’ ability to sign new PPAs.

JPVL, for example, has seen its net loss widening to ₹760 crore against ₹294 crore in FY16. While the company sold two of its hydro power assets in FY17 to JSW Energy, which led to a drop in revenues, the remaining of 2,200 MW capacity, out of which 1,820 MW is thermal, has been performing poorly. This, according to JPVL annual report, is on account of frequent back down instructions from Madhya Pradesh’s State Load Despatch Centre, non-availability of long-term PPAs, and non-availability of the corridor for the tied-up capacity coupled with low merchant power tariffs.

According to CRISIL, banks will require to take around ₹2.4 lakh crore haircut to clear up their balance sheets — this accounts for around 60 per cent of the value of top-50 non-performing assets across infrastructure and power sectors.

Project viability

“Power is one of the most stressed sectors and the issue is not going to get resolved quickly,” Sameer Bhatia, CRISIL Infrastructure Advisory, told BusinessLine adding that PPAs and overall viability of some of the thermal power projects remain a question mark making it difficult to arrive at realistic valuations and haircuts. However, he added, once the first one or two deals with banks taking substantial haircuts go through, which may take 1 to 1.5 years, the other deals will start flowing too.

(This article was published on September 19, 2017)

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