Lenders have taken a significant step in resolving debts of about a dozen distressed power companies, with at least four to be taken to bankruptcy court and the rest to be put up for sale, said two people with knowledge of the matter. In the latter case, banks will insist on at least half the loan value being paid in cash by the prospective owners, they said.
At a meeting headed helmed by top State Bank of IndiaNSE 0.64 % (SBI) executives on Monday, it was decided that for the non-bankruptcy cases, existing promoters have to cut their stakes to less than a quarter so that they do not have any veto power.
GMR Chhattisgarh, Ind-Barath Energy (Utkal), Lanco Anpara and Jindal India Thermal Power are among the projects that will be referred to bankruptcy court while KSK Mahanadi, Jhabua Power and RKM Powergen will be restructured by banks, said said the people cited above. The companies couldn’t immediately be reached for comment.
“Lenders today finalised broad parameters to evaluate the bidders for the power projects that would be put on the block. If the bids are not in line with these parameters, they would be sent to bankruptcy court for resolution,” said one of the bankers cited above.
Companies such as Adani and Vedanta and funds backed by India Resurgence, Edelweiss and KKR have shown interest in acquiring these power companies.
Banks are insisting on at least half the loan value to be paid in cash by prospective buyers in eight cases as they believe that these have the potential to begin production and generate cash without substantial investment. “Cash component should be either 50% of debt or more than the sustainable debt of the company, whichever is higher,” said a bank official present at the meeting,
Another condition is that lenders will only consider those offers that price the per megawatt value at least Rs 3 crore //check//. Lenders also want existing promoters to relinquish control. “In case they have to stay back, they have to lower their stake below 25%,” said the banker cited above. Also, lenders have decided that the bidder awarded the power company should pay at least 20% cash upfront or provide bank guarantees to that extent.
Lenders are in a hurry to resolve power sector bad loans after an Allahabad High Court stay that prevented banks from referring these companies to bankruptcy court was vacated earlier this month. The Reserve Bank of India’s February 12 circular said that banks have to resolve stressed accounts within 180 days of default or refer them to bankruptcy court. With March 1 as the reference date after the circular was issued, lenders have until August end to resolve these loans.
Banks led by SBI had identified a dozen power projects with outstanding loans of Rs 2 lakh crore to be resolved