PFC, REC, NTPC could form joint venture to bid for stressed assets

Two leading public sector lenders in the power business and a state-owned power-generating giant are likely to come together and bid for stressed assets that will go through resolution under the Insolvency and Bankruptcy Code (IBC).

Power Finance Corporation (PFC), which has a considerable debt exposure to the sector; Rural Electrification Corporation, which lends to development power schemes; and maharatna public sector undertaking (PSU) NTPC are thinking of forming a company that will buy out power projects.

The proposed venture might have equity participation from other PSUs like NHPC, PowerGrid, and Bharat Heavy Electricals. The companies are hoping to form the venture before the 180-day period set by the RBI for lenders to stressed companies lapses, according to sources.

 

Senior executives in PFC said the projects which would come to the National Company Law Tribunal (NCLT) offered a good opportunity. “If we can ensure a fair price for these projects and hold on to them for a year or so, they will be a gold mine in the future as demand is increasing,” said an executive.

The executives, however, said the idea was in a preliminary stage and they would want more PSUs to join in. It would be finalised after considering the Reserve Bank of India (RBI) guidelines and legal issues.

The objective of this joint venture (JV) is to take over these projects and operate and execute them till the demand situation improves and sell them later at a better valuation, according to another official.

Senior NTPC officials said the JV was a good idea if there were six-seven companies in it. “If such a JV is successful, we would benefit a lot from it as it offers the opportunity for O&M (operation and maintenance) for the company as well. We will see how the talks go forward,” said an executive, requesting anonymity.

With assets of more than 80,000 megawatt (Mw), operational or under construction, severely stressed due to various reasons, the chances of their landing in insolvency courts have grown after last month’s RBI circular on the ‘Resolution of Stressed Assets — Revised Framework’. It mandated banks to classify even one day’s delay in debt servicing as default. The notification mandates resolution proceedings against stressed accounts to be completed in 180 days.

PFC alone would see close to 14,000 Mw of its projects landing in the NCLT because a resolution for these assets is difficult due to several regulatory and legal issues.

Stressed assets of more than 25,000 Mw in thermal power are on sale outside the IBC. These are not finding buyers. Most promoter companies of the projects — some operational and others still under development — want to exit.