The Great Distress Sale: Power Plants Fly Off The Shelf

By Soma Banerjee @somaet
Executive Director – Energy & Infrastructure, @FollowCII @CIIEnergy

A walk through any of the city’s shopping malls is bound to catch your attention on the multiple deals and sale options for a wide mix of products from cars to clothes and cosmetics. Ditto is the case at e-commerce sites where sellers are wooing customers by the hour with unbelievable discounts on almost every product. But have you ever come across a discount sale of almost 50% on large capital-intensive power plants?

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Yes, you heard me right. Indian bankers and financial institutions are today selling their wares – read, power generating plants financed by them – as distressed sale, in some cases taking a 50% haircut. Said simply, the bankers and financial institutions are writing off 50% of their debt to sell these assets. Such is the urgency to clean their books and distress the sector.

Large power promoters who had built these power stations are stuck with assets but are unable to service loans for several reasons. The option for the bankers to whom these promoters owe huge debts is to either declare bankruptcy and resort to the National Company Law Tribunal (NCLT) or sell off the assets at discounted prices. The NCLT process has begun in all earnestness and some of the companies have already moved that route, but it comes with its own set of downsides, the biggest being the lengthy process.

Selling off the asset is thus an easier and faster route. Given the large waivers and haircuts the bankers have taken while restructuring the financing, there is a whole new appetite for these projects. Media reports suggest that Bank of America, Merrill Lynch, Edelweiss, JM Financial, KKR, Lonestar-IL&FS, Resurgent Power, SC Lowy, Torrent, Varde Partners, SSG Asia, Worlds Window EXIM and NIIF are some of the financing agencies that may bid for the three stressed power projects that Power Finance Corporation has put up for sale.

The advent of these new promoters and investors in India’s power space is good news and is expected to push new players in the market. Low demand had led to several existing power plants functioning at sub-optimal plant load factors while many other plants have been stuck midway for want of fuel (gas) or no power purchase agreements. The stressed assets in the power sector has been a sore point for the last few years, adding to the bleak investment climate in this sector. The stress in the power industry has reportedly left SBI with a 30% share in the stressed assets of private power producers.

Though this may come as a breather and infuse new energy in the sector, it will be important to address the systemic issues at the distribution level to sustain the investment interest!