Ideal Energy Projects Ltd has approached a group of six lenders led by state-owned Canara Bank Ltd to recast Rs. 1,300 crore worth of loans on the corporate debt restructuring (CDR) platform after its business was crimped by weak demand for power amid slower economic growth.
The proposal by Ideal Energy, a company promoted by the family of IRB Infrastructure Developers Ltd chairman Virendra Mhaiskar, has been admitted by the CDR cell, a forum of banks, and will come up for discussion on 24 December, a senior banker familiar with the development said.
“It should go through as there are very few banks in the consortium,” the banker said on condition of anonymity. Typically, if too many banks are involved, it takes time to reach a consensus on loan restructuring proposals.
The power sector contributes about 9% of the loans restructured through the CDR mechanism. Banks typically offer a payment holiday to a financially stressed company, stretch the period in which the loan has to be repaid, cut the cost of borrowing and sometimes even take a “haircut” by reducing the amount of debt the borrower has to pay back.
A CDR is approved if at least 75% of the creditors by value of the loan and 60% by number back the proposal.
Typically, 70-80% of the power generated by private power generators is sold under long-term contracts to state-government owned distribution utilities and the remaining to consumers either directly or through power exchanges.
“Hardly any state government-owned power distribution company (discom) has come out with bids inviting tenders from private power generators for supply of power and due to economic slowdown, there are no takers for merchant power,” said Jayant Mhaiskar, chairman of Ideal Energy.
Merchant power is the capacity of a power plant that is not tied up under long-term contracts with the discoms and is sold directly through bilateral contracts with large industrial or commercial consumers or through power exchanges. Some power plants are also facing problem of inadequate or no coal supply.
Mhaiskar confirmed that the company had approached banks for loan restructuring.
“We recently had a meeting with state government officials and told them their claim of state being power-surplus is not correct; many parts of the state are still facing regular load shedding and they must come out with bids to procure additional power,” he said.
India’s banking system has been weighed down by an increase in restructured loans as slowing economic growth, which slumped to a decade’s low of 5% in the year ended 31 March, and high interest rates make it difficult for many corporate borrowers to repay loans. As of the end of September, Indian banks had recast about Rs.2.7 trillion worth of loans under the CDR.
Ideal Energy is not the only power company which is in trouble. Weak demand has affected nearly 2,250 MW of power capacity in Maharashtra and many plants are not producing any electricity. “An investment of nearly Rs.12,000 crore has got locked up,” said a senior official from Maharashtra government’s energy department who did not want to be identified.
The companies whose projects are stranded include JSW Energy Ltd, CESC Ltd, KSK Energy Ventures Ltd and Gupta Energy Ltd.
While CESC’s spokesman declined to comment for the story, an email sent to JSW Energy’s public relations agency remained unanswered. Mails sent to KSK Energy and Gupta Energy also remained unanswered.
According to estimates by the Association of Power Producers (APP), a lobby group of private power generators, nearly 10,000 MW of power capacity at the national level has been stranded. Plants with a capacity to generate nearly 17,000 MW are operating at less than 60% of installed capacity because of inadequate fuel supply.
“If we want to end woes of power sector, we need to carry out reforms in distribution urgently,” said APP director general Ashok Kumar Khurana.
Kameswara Rao, executive director and leader of the energy, utility and mining practice at audit and consultancy firm PricewaterhouseCoopers, said there had been a dramatic increase in the number of coal-based thermal power projects that had been stranded for lack of fuel.
“A variety of reasons have hit the sector simultaneously —utilities are slow to bid or sign new power purchase agreements while many new projects got commissioned,” he said.
