GVK may sell gas power assets to Andhra Pradesh to settle Rs 18-bn debt

Debt-ridden GVK Group is in talks to sell two of its gas-based power projects with 684 Mw combined installed capacity to Andhra Pradesh power utilities in order to settle debt of around Rs 18 billion through a one-time settlement (OTS).

While agreeing to take over the 464-Mw GVK Gautami Power and 220-Mw Phase-II of Jegurupadu Power as proposed by the company, the AP Discom has asked the project’s lenders to come up with their offer for sale of these assets, a senior GVK official said.

The two stranded gas power projects have been adding to the group’s losses for the past few years as natural gas was not available to run the plants.

Most of the loans taken for the projects turned NPAs after the company failed to repay the debt as the plants remained idle for most part of their life cycle. Earlier in 2015, AP Transco had taken over the 217-mw Jegurupadu Phase-I combined cycle gas power unit of GVK by paying a residual value of about Rs 260 crore upon expiry of the power purchase agreement (PPA). 

“We have demonstrated to the power utility that it would cost lesser to produce power from these plants compared to the amount being currently spent on purchase of power. The AP government has in principle agreed to buy out these plants. We are currently working with the lenders to finalise the offer,” GVK Power and Infrastructure (GVK PIL) vice-president Sanjeev Kumar Singh told Business Standard.

As the Jegurupadu Phase-I project was debt-free at the time of expiry of the the PPA, the GVK management had used the amount received from AP Transco to reduce debt of the Phase-II project. 

Currently, the Jegurupadu Phase 2 project and Gautami have an outstanding debt of about Rs 4.50 billion and Rs 12-13 billion respectively, according to the company’s officials.

Interestingly the latest valuations of these assets are higher than the outstanding project debt, a factor that could help the lenders get their money without taking a steep haircut in the OTS process. 

While Gautami was valued at around Rs 20 billion, the valuation of Jegurupadu 2, which sits on a 300-acre, was stated to be around Rs 5 billion. The two plants were operated only for about three years starting 2012 before being shut down for want of natural gas. The deal is expected to be closed in 2-3 months’ time

The GVK PIL reported a consolidated net loss of Rs 5.37 billion for the year ended March, 2018, on account of losses from all the four power projects, including 540 Mw coal-fired Goindwal Sahib and 330-Mw Alakananda Hydro power projects. 

If the firm succeeds in monetising the gas power assets, power division would stop generating fresh losses during the current year as Goindwal Sahib and Alakananda are going to be on track to generate revenues to the full extent, according to Sanjeev Singh.