PSU lenders hire experts for reviving stalled thermal power projects

Mumbai: Keen to keep stressed assets under check, large state-owned lenders have taken it upon themselves to hand-hold incomplete thermal power generation projects and ensure their successful completion. Banks are bringing in third party turnaround experts to monitor the progress of such projects and to make sure that deadlines are strictly adhered to. Any additional funds being provided to these projects are being managed by the turnaround experts.

According to three people aware of the talks, banks such as State Bank of India (SBI) and IDBI Bank, have brought in restructuring advisory firms to conduct due diligence on incomplete power generation projects and come up with a turnaround plan. Upon completion, the promoters may choose to produce power and repay the lenders or participate in project sales facilitated by the bankers.

Even though a large number of power projects are stuck due to lack of fuel linkages and inadequate demand from state utilities, lenders feel that there are other projects where banks can make a difference.

“There are a lot of power projects where timely intervention will bring a lot of stability and will help in retaining value, and eventually selling to someone. These will typically be cases where the promoter has not been able to complete the project due to cost overruns and lack of funding,” said one of the three people quoted above. He requested anonymity due to confidential nature of such negotiations.

In cases where projects are stuck due to lack of fuel linkages or environmental clearances, lenders are working with various government agencies to resolve the problems, the person said.

Some accounts where bankers are looking to bring in turnaround professionals include SKS Ispat and Power Ltd and Monnet Power Co. Ltd, said the second person quoted above.

Detailed questionnaires sent to SKS Ispat and Monnet Power remained unanswered.

“Such a deal will always help both lenders and the promoters. For a lender the fact that the project will be functional and taken over by another eligible entity is a big positive, while for the borrower it is an exit option to focus on their other businesses,” said the second person quoted above.

Stalled power projects are a major area of concern for bankers owing to the large amount of bank funds stuck there. According to data collated by Centre for Monitoring Indian Economy Pvt Ltd, as of 31 March 2015, 607 projects with investments worth over Rs.4.85 trillion were classified as stalled. Of this, 33 projects, representing over Rs.1 trillion in investment, belonged to the electricity segment. A large part of these investments are in the form bank loans.

Over and above the bank funds stuck in stalled power generation projects, bankers are also highly concerned about loans extended to state power utilities. The dismal condition of some of the state utilities and the large amount of loans stuck there have made lenders nervous about the possible rise of bad loans from the sector.

“At present the state distribution companies are the weakest link in the power sector,” according to Vibha Batra, senior vice president and group head- financial sector ratings at ICRA Ltd, adding that this is reducing the demand for power.

Unless financials of distribution companies are improved power generation projects may continue to face hurdles despite the best efforts of bankers.

“....considering their dismal financials, for distribution companies to enter into PPAs (power purchase agreements) they would have to first fix their inefficiencies. The onus would once again fall on state governments to take steps in this direction,” said Batra.

On 14 July, The Economic Times reported that SBI chairperson Arundhati Bhattacharya recently met senior officials of the finance and power ministries to raise concerns about the potential rise in bad loans emerging from the power sector, specifically from the state electricity boards. The concerns raised were industry-wide and not specific to SBI.

Reserve Bank of India monthly sectoral data puts bank exposure to the power sector at nearly Rs.5.7 trillion, as on 29 May. SBI alone is estimated to have had an exposure worth Rs.1.57 trillion to the sector as on 31 March 2015, as per data collated by Angel Broking. Canara Bank had an exposure of Rs.57,309 crore, and IDBI Bank Rs.41,259 crore.