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Amid the uncertainty over land acquisition, fuel availability and deteriorating finances, companies in the power sector are exploring acqu- isition of stressed assets. Some of the players including JSW Energy have decided not to construct new facilities, but invest only in existing ones. On the other hand, the state-run NTPC has earmarked Rs 10,000 crore to acquire such assets, while simultaneously pursuing its ongoing capacity addition plans.
According to CRISIL Ratings, there are 46,000 Mw of power projects facing critical viability issues due to the lack of long-term buyers for electricity and inadequate fuel supply.
Ashok Khurana, director-general of Association of Power Producers, told Business Standard: "Developers are opting for brown-field (existing) projects due to difficulties associated with land acquisition, grant of new water and coal linkages. Some of the projects are 10-20 years old with obsolete technology and not efficient. They are on the block. Valuation won't be an issue for NTPC, especially while acquiring state government assets as the proceeds will be transferred from the state to the central undertaking. But the valuation is holding back the private sector from the acquisition of stressed assets."
According to Pawan Agarwal, chief analytical officer at CRISIL Ratings, acquisition of stressed assets is on the horizon. "However, key challenge includes the valuation expectations of promoters especially due to the debt and finances of the original developer. In such a situation, lenders and the original promoter might have to take a major haircut. Still the opportunities for exit do exists in this space."
Debashish Misra, Deloitte Touche Tohmatsu India's senior director, is of the opinion that assets on power sector are shifting from weaker balance sheet to stronger ones, through a series of acquisitions in the past few quarters. Many of these are driven by the lenders pressure on the developers to reduce debt.
"Although at present there is capacity stranded or under-utilised due to demand not picking up adequately, it is expected that the situation would improve significantly in the next 24 months. Groups having the ability to withstand the financial stress till then are betting on buying these brown-field stressed assets," Misra added.
According to Kameswara Rao, partner (energy, utilities and mining) at PricewaterhouseCoopers, today's acquirers are mainstream energy companies with a longer term view and are more comfortable with modest but sustainable returns.
“Sellers are taking a haircut on various counts such as regulatory under-recovery, fuel quality, stranded capacity, and payment delays, besides growth expectations. Lenders benefit from these transactions as assets are getting priced to realistic levels, and capital released helps the turnaround plan and is applied to complete stalled projects."
According to Rao, the acquisitions are largely of operating plants priced closer to current off-take. So, the risk of low demand is limited.
According to CRISIL Ratings, there are 46,000 Mw of power projects facing critical viability issues due to the lack of long-term buyers for electricity and inadequate fuel supply.
Ashok Khurana, director-general of Association of Power Producers, told Business Standard: "Developers are opting for brown-field (existing) projects due to difficulties associated with land acquisition, grant of new water and coal linkages. Some of the projects are 10-20 years old with obsolete technology and not efficient. They are on the block. Valuation won't be an issue for NTPC, especially while acquiring state government assets as the proceeds will be transferred from the state to the central undertaking. But the valuation is holding back the private sector from the acquisition of stressed assets."
According to Pawan Agarwal, chief analytical officer at CRISIL Ratings, acquisition of stressed assets is on the horizon. "However, key challenge includes the valuation expectations of promoters especially due to the debt and finances of the original developer. In such a situation, lenders and the original promoter might have to take a major haircut. Still the opportunities for exit do exists in this space."
Debashish Misra, Deloitte Touche Tohmatsu India's senior director, is of the opinion that assets on power sector are shifting from weaker balance sheet to stronger ones, through a series of acquisitions in the past few quarters. Many of these are driven by the lenders pressure on the developers to reduce debt.
"Although at present there is capacity stranded or under-utilised due to demand not picking up adequately, it is expected that the situation would improve significantly in the next 24 months. Groups having the ability to withstand the financial stress till then are betting on buying these brown-field stressed assets," Misra added.
According to Kameswara Rao, partner (energy, utilities and mining) at PricewaterhouseCoopers, today's acquirers are mainstream energy companies with a longer term view and are more comfortable with modest but sustainable returns.
“Sellers are taking a haircut on various counts such as regulatory under-recovery, fuel quality, stranded capacity, and payment delays, besides growth expectations. Lenders benefit from these transactions as assets are getting priced to realistic levels, and capital released helps the turnaround plan and is applied to complete stalled projects."
According to Rao, the acquisitions are largely of operating plants priced closer to current off-take. So, the risk of low demand is limited.
