Debt rejig to increase cash flow of discoms: Rating agencies

It will also provide a boost to the entire supply chain of equipment and power suppliers as well as lenders to the sectors

Domestic rating agencies today welcomed the Centre's nearly Rs 2 lakh crore restructuring package for power distribution companies, saying it will increase cash flow to the ailing state electricity boards (SEBs).

"The scheme (recast) would reduce the debt servicing burden for discoms by Rs 0.95 trillion immediately," Icra said, stressing that an annualised tariff hike of up to 11% would be required to ensure recovery of all costs.

"In the short term, this will ensure the resumption of much-needed flow of credit for discoms, and as a result, provide a boost to the entire supply chain of equipment and power suppliers as well as lenders to the sectors," another rating agency, Crisil said.

For the banks, Icra said even though restructured assets in the system would reduce by 15% from the March, 2012 figure but the lenders' profits will be affected in FY13 due to a net present value loss on restructured advances and provisions of around Rs 15-16 billion on the recast loans.

"If tariff revisions or other operational improvement measures are not sustained, we may have only postponed the underlying problem, giving the lenders false sense of low NPAs from discoms for few more years," Icra said.

Crisil said the impact of the package will not be realised unless a broad-based political consensus is achieved to implement the much-needed tariff hikes.

The Centre yesterday approved restructuring of Rs 1.9 lakh crore debt of SEBs in a move to turnaround the near- bankrupt discoms.

Under the scheme, 50% of the short-term outstanding liabilities would be taken over by State Governments. Balance 50% loans would be restructured by providing moratorium on principle and best possible terms for repayments.