SBI convenes Indian banks to try to resolve 19 distressed Indian power projects with USD 17.80bn outstanding debt before bankruptcy deadline

29 May 2018
State Bank of India has recently brought together domestic bank lenders on 19 distressed Indian thermal power projects to try to hash out resolutions before the Reserve Bank of India’s end-August deadline to put them into bankruptcy, according to three sources with knowledge of the matter.
 
The interbank talks, which began early this month, cover projects owned by the likes of conglomerates Essar Group, Avantha Group and Jaypee Group and with a total of around 23.72GW power capacity, said one of the three sources and a fourth source with knowledge. In total, the plants have INR 1.2trn (USD 17.80bn) outstanding debt, said the first source.
 
The thermal power sector in India has long struggled because of inadequate domestic coal supply and an inability to tie up power purchase agreements (PPAs), India Ratings & Research noted in a report dated 15 February. In addition, even plants that do have offtake contracts often struggle to collect from the cash strapped state-owned distributors.
 
The 19 plants being discussed were selected on the basis that they could be made viable by cutting debt levels, mostly because they have existing fuel supply and power purchase agreements (PPAs) in place for at least some of their capacity, according the second source.
 
Names on the list include Essar Power's 1200 MW project in Madhya Pradesh, GMR Chattisgarh Energy's 1370 MW plant, two plants of Jaypee Power Ventures Ltd (JPVL) -- 1320 MW at Nigrie and 1980 MW at Prayagraj -- and Jindal India Thermal's 1200MW plant, said the first and fourth sources. The biggest project on the block is KSK Energy Ventures' 2400MW plant at Mahanadi in Chattisgarh, said the same two sources.
 
 
 
 
Step-by-Step
 
Nicknamed “Samadhan” (Hindi for satisfaction or resolution), the multi-step scheme to deal with each of the 19 power-plant SPVs starts with determining the sustainable debt levels based on a given plant’s PPAs, fuel supply agreements and actual rate of return for lenders on the project debt, according to the third source, citing the minutes of the 2 May meeting.
 
The lenders will then convert the unsustainable debt into equity, and try to sell off at least a majority stake to an asset management company or a strategic investor, the third source said.
 
State-owned thermal power producer NTPC Ltd has been approached to "preserve" the assets until a resolution plan is implemented, the fourth source said, citing the minutes.
 
Other options being discussed include either obtaining a one-time-settlement (OTS) with the promoters or selling the loans, according to the second source.
 
The discussions are the Indian banks' response to a 12 February Reserve Bank of India (RBI) circular instructing them to formulate a resolution plan within 180 days for any stressed account with a total debt of more than INR 20bn (USD 296.69m), or if not, to put the debtor into bankruptcy.
 
The catch to this time-bound resolution process is that it requires unanimous approval from the lenders, making bankruptcy a distinct possibility, said the third source.
 
"The [Samadhan scheme] won't work out," the third source said. "Just to determine the sustainable debt you need to appoint experts, work out the financial models, figure out interest rate - there's no way it will be done in such a short time."
 
The first meeting of the forum was held on 2 May in SBI's corporate head office in Mumbai and consisted of at least 15 banks, according to the first and third sources.
 
Power plays
 
For at least three of the projects, lenders have already invoked pledges over a majority stake, including for Avantha Power & Infrastructure’s Jhabua Power Ltd, as reported, and for JPVL's Prayagraj Power Generation Company Limited, according to a stock exchange disclosure dated 20 December.
 
An Axis Bank-led syndicate of Indian lenders have already invited expressions of interest for Jhabua Power earlier this month, as reported. SBI Caps is leading the sale of Prayagraj, according to the 20 December announcement.
 
Conversely, power producers are fighting for their survival by going after backsliding grids. Thermal power producer Ind-Barath Power Infra Ltd (IBPIL), whose 600MW Utkal power plant in the eastern state of Odisha is on the list, filed to put state-owned power distributor The Tamil Nadu Generation & Distribution Corporation Limited (TANGEDCO) into bankruptcy for failing to pay its dues, according to NCLAT website.
 
SBI did not respond for comment.
 
by Pallavi Ail and Pranav Nambiar in Mumbai