PFS to raise Rs 500 cr in equity; looks to bring down gross NPA under 4%

The company has also become the first NBFC to avail of the RBI's credit enhancement scheme by raising Rs 250 crore in bonds from LIC

PTC Financial Services (PFS) is planning to raise Rs 500 crore in equity by inducting a new partner or a combination of institutional players. It has also become the first non-banking financial company (NBFC) to avail of the Reserve Bank of India’s credit enhancement scheme by raising Rs 250 crore in bonds from Life Insurance Corporation (LIC).

“We will take in an equity partner this financial year or in the first quarter of next financial year,” Pawan Singh, PFS managing director and chief executive officer, told Business Standard.

LIC has agreed to participate with up to Rs 250 crore in its first tranche of Rs 580-crore bonds that would be backed by partial credit enhancement (PCE) of State Bank of India (SBI) to the extent of 20 per cent of the initial issued bond amount. “The first tranche will be completed before November 30,” said Singh.

In November 2018, the RBI, with a view to providing liquidity support to NBFCs, had allowed banks to provide the PCE facility to NBFCs for supporting their bond issuances.

PFS became the first NBFC in the country to avail of the facility, to the extent of Rs 400 crore from SBI to support its bond issuance of up to Rs 2,000 crore.

According to Singh, PFS was trying to reduce its bank borrowings and was looking for funds from multilateral agencies. It is looking to raise $150 million from JICA, International Finance Corporation and a French multilateral agency.

Singh said PFS was aiming to bring down its gross non-performing assets (NPAs) to under 4 per cent from the current level of a little over 7 per cent (Rs 950 crore). “We are working strongly on it. We are taking three projects to asset reconstruction companies which will cumulatively bring down our gross NPAs by 2.5 percentage points. One of the three is not NPA but a stressed project. Together the three are valued at Rs 780 crore,” said Singh. All the three projects are conventional power projects.

Besides, two assets worth Rs 165 crore are going for a one-time settlement. In all, Rs 700 crore worth of assets will go out of PFS’ books by January 2020.

Currently, 14 per cent of PFS’s loan portfolio is thermal, but now it is increasingly turning towards renewable energy funding, along with other infrastructure projects like e-charging, sewage treatment plants and hybrid annuity projects in the road sector. 

“We have seen that the loan-to-value rate is very high in renewables which is not the case in coal-based power generation,” said Singh. Citing the reason for the same, he said the execution risk in renewables was not very high when compared with thermal, though there were counter-party risks in it. “In renewables, the challenge is timely payment, but in thermal assets there are structural issues,” he added.

Another issue which is the company has resolved is of lower margins. Singh said they were earlier focused on increasing the asset base and not so much the margins. “We were reaching a stage where some assets were not giving margins and some were giving very low margins. So, we shifted the pricing methodology from reference rate to base rate for higher yields,” he said.