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MOSL: UTILITIES-Resolution of stressed power plants gaining pace-Takeaways from PTC analyst meet

UTILITIES: Resolution of stressed power plants gaining pace; Takeaways from PTC analyst meet

 

We attended Power Finance Corporation’s (PFC) analyst meet to understand the progress on resolution of financially stressed power sector companies. PFC is one of the largest lenders in the power sector, with exposure to several financially stressed power generating companies. 

According to the management, the high intensity of financial stress in the power generation sector is now behind; probably as there are very few new privately-owned plants commissioned in the past couple of years that are not under stress. But, the resolution process for the stressed assets is finally gaining pace due to several recent policy initiatives. The asset-wise details of the resolution in progress and key takeaways from the analyst meet: 

Assets getting settled

• Rattan India, Amravati (1,350MW): The existing promoters have offered a one-time settlement (OTS) of INR40b, as against the outstanding principal amount of INR62b. LOI has been issued, as this emerged as the best offer after a bidding process (Swiss challenge method). The plant has 100% long-term PPA and coal linkage. The financial stress was due to cost over-run and partly, in our view, due to aggressive bidding. With expected reduction in debt for the Amravati facility and takeover of the Nasik plant by lenders, Rattan India should have a sustainable company. A ballpark calculation suggests that Rattan India will have an average EBITDA of INR5b over the next 15-20 years, while its debt would still be 8x of that.
• RKM PowerGen (1,440MW): Recent developments have improved cash flow visibility of the project. Of the total capacity, there was already a long-term PPA with UP DISCOM for 350MW. It recently won 550MW 3-year medium term PPA (with Telangana) under the pilot scheme by the Central government. The disputed 393MW PPA with Chhattisgarh DISCOM is also likely to get resolved soon. Bankers are in process of settling with the existing promoters. The resolution plan would also require a rating approval with a minimum RP4 rating.