Fearing Reserve Bank of India’s revised guidelines for stressed assets may force some 75,000 mw of coal-fired power projects into bankruptcy, the Association of Power Producers has requested the government to relax timelines of the new rules for the sector.
A recent RBI circular stipulates that a one-day default in debt servicing would require reporting it to the central bank and implementation of a resolution plan.
All accounts with exposure of Rs 2,000 crore and above, on or after March 1, 2018, and in default have to formulate a resolution plan. In case of any failure to formulate and implement resolution plan within six months, the case has to be mandatorily referred to national Company Law Tribunal (NCLT) for Insolvency and Bankruptcy Code proceedings.
The new guidelines also require 100% lenders to pass board-approved policies for resolution of stressed assets. Even if one lender disagrees, it would take the company to NCLT. Power executives find this too stringent a clause and believe it would push companies to bankruptcy. Earlier, it was 75% of the lenders by voting share and 50% by number.
Ashok Khurana, director general of the Association of Power Producers, said: “No provisioning is required in case the resolution plan involves change in control. The guidelines majorly dis-incentivise any loan restructuring and push for sale or change of control for any stressed entity raising risks for developers and equity investors.”
At present, some 75,000 mw of coal-fired power generation assets under-operation or under-construction — are severely stressed due to various reasons including lower availability of coal and lack of power purchase agreements.
Anjan Ghosh, chief rating officer at ICRA, said: “For coal-fired power plants that do not have steady access to fuel or power purchase agreements, coming up with a resolution plan within six months is too less a period. We fear almost all of these companies may end up at the NCLT under RBI’s new rules for bankruptcy.”
“The revised framework is also likely to lead to a debt haircut of about 35% (varying between 20% to 70% across the entities) for such affected thermal capacity based on ICRA estimates, given the issues arising out of cost over-run, unviable tariffs & lack of PPAs,” Sabyasachi Majumdar, group head & senior vice president at ICRA Ratings, said.
Khurana said, “Factors that has been affecting the sector include delay of three-four months in bill payment for power sold to distribution companies. Total outstanding at present is around Rs 8,300 crore. There is always a delay of at least two years in receiving orders from Electricity Regulatory Commissions on passing on increased costs in a large number of cases.
Approximately Rs 7,800 crore are stuck as regulatory receivables. This amount is increasing progressively.” Coal India supplies only 60% of coal required to supply power under a long term PPA while additional procurement of coal under eauction is not compensated by distribution companies on an ongoing basis. These needs approval which is at times delayed .