India’s largest financier to the power sector, Power FinanceCorp (PFC), has initiated resolution proceedings against defaulting power projects as per a Reserve Bank of India circular and has received bids for some of those where change of management is being envisaged. However, the deadline of August 27 to conclude the resolution process appears to be challenging, PFC chairman Rajeev Sharma tells Sarita Singh. Edited excerpts:
There have been discussions on the RBI circular and the way forward. How has it impacted you and what are the options that are being worked out?
At the outset, let me clarify that the RBI circular dated February 12, 2018 is currently not applicable to NBFCs like PFC. However, since PFC is a consortium partner with banks in projects, PFC has adopted the circular as a matter of prudence. Accordingly, six loan accounts have been classified as NPAs in quarter four of FY17-18, amounting to Rs 12,000 crore.
Joint lenders forum mechanism has got disbanded as per the RBI circular. In absence of specific stipulation regarding approval required in terms of value and number of lenders, 100% consensus is required for any resolution to be made by lenders, which may be quite time consuming.
Loans where the aggregate exposure of lenders is more than Rs 2,000 crore, the resolution plan needs to be implemented latest by August 27, 2018 — that is 180 days from March 1, 2018 — failing which lenders have to file insolvency applications under the IBC (Insolvency and Bankruptcy Code). In most of the cases, processes for resolution of stress have already been initiated to achieve the 180-day timeline.
PFC is presently working out resolution options provided under the RBI circular, including change of ownership in six projects, restructuring of debt in five projects, while nine projects are being taken up for resolution through NCLT under IBC.
Are there other resolution options that PFC is looking at besides the Samadhan and Pariwartan schemes?
Resolution plans for power projects vary from one project to the other. So, it is not a ‘one solution fitting every problem’ kind of approach. Some projects may have to be resolved through Samadhan, some through Pariwartan and for some projects other options might have to be explored. For example, in case of one transmission project and one generation project, we are exploring with the state governments to take over the projects.
We are also exploring one-time settlement opportunities in some other projects.
Will PFC be looking at acquiring some equity in stressed assets, in partnership or alone?
As part of restructuring of debt or a resolution plan, PFC or lenders would be looking at converting part of the unsustainable debt into equity and other equity-like instruments. We have no other plans to acquire equity in other projects.
Please share with us PFC’s fund raising plans for the current financial year….
PFC achieved many milestones in the last fiscal. We achieved the highest ever sanctions and disbursements of Rs 1.16 lakh crore and Rs 64,400 crore, and also registered loan growth of 14%.
We raised substantial amounts through foreign currency loans and FCNR(B) loans. However, the biggest achievement was obtaining dispensation from the Ministry of Finance regarding capital gains tax under section 54EC of the Income Tax Act. This has opened up a new avenue for raising low-cost funds.
PFC received the approval for raising capital gain bonds u/s 54EC of Income Tax Act, 1961 with effect from June 15, 2017.
These bonds help in tax saving to the extent that capital gains arising from transfer of longterm capital assets such as land or building, subject to a cap of Rs 50 lakh.
We are a new entrant in the segment (offering capital gain bonds) compared to our peers who were in the segment for more than 15-20 years. However, we are expecting collections to pick up from this fiscal. With respect to our borrowing plan, PFC plans to raise around Rs 60,000 crore during FY 2018-19 from a combination of long-term and short-term funds namely bonds, term-loan, commercial paper, etc., from both domestic and international markets.
We are giving increased focus to diversify our borrowings and have raised around 14% of total borrowing in FY 2017-18 in foreign currency by way of syndicated loan, bonds, FCNR(B), etc., and target to raise even higher proportion of total borrowing from external markets this year.
What are present interest rates and PFC borrowing costs?
Cost of funds of PFC as on March 31, 2018 is 8.18% per annum.
Interest rates have gone up in the current financial year but with judicious mix of short-term and long-term funds both from domestic and international market, and an expected increase in collection of funds by issue of capital gain bonds u/s 54EC of Income Tax Act, we hope to maintain our average cost of funds in the current year also at around the same level.
The Economic Times