 "40-60% haircut may help resolve Rs 1-trillion stressed power debt: CRISIL")
A haircut of 40-60 per cent along with a few financial safeguards can help in resolving nearly Rs 1 trillion of stressed power loans, a report by Crisil said Tuesday.
The analysis is based on the rating agency's assessment of 16,000 megawatt (mw) power assets, which account for nearly two-thirds of stressed and operational coal-based capacities.
"A 40-60 per cent haircut, along with financial safeguards, can resolve as much as Rs 1 trillion of debt stuck in coal-based power projects and enhance their viability on a sustained basis," the agency said in the report.
The haircuts are also supported by financial safeguards such as elongated repayment structure, lower interest rate, comfortable liquidity through debt service reserve accounts (DSRA), and adequate working capital limits for coal requirements, it added.
Crisil said for some capacities, takeover by a financially strong and more-experienced management can ensure quicker turnaround.
Lower debt and the consequent reduction in the cost of electricity generation will make these capacities attractive to new power purchase agreements (PPAs), the report said.
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Thermal coal-based power capacities have been in stress for multiple reasons, including over-leverage due to costs over-runs, inadequate PPA and fuel supply agreements, and aggressive bids.
While structural issues such as PPAs and fuel supply agreements may continue, Crisil feels debt haircuts can potentially improve cost of generation for these plants.
"Lower cost of generation will also enhance the competitiveness of these capacities, making them amenable to new PPAs, provided fuel supply remains adequate," it said.
Of the capacities assessed by Crisil, nearly 6,000 mw did not have PPA.
With power demand expected to grow at a healthy pace of around 6 per cent over the next four years (5.5 per cent in financial year 2018), these capacities could benefit from potential new PPAs, the report said.