Will the power sector be as lucky as steel and find its own Liberty House?

The insolvency process in the sector marked the entry of Liberty House into India's steel industry, a name largely unknown in the country, beating established ones like the Tatas and the JSW Steel. With more than a dozen stressed power assets now piling up at insolvency courts, one may ask if the sector will see the emergence of a Liberty.

Outside of NCLAT, lenders saw interest from companies like Adani Power, Tata Power's joint venture Resurgent Power and JSW Energy for the take over of stressed companies. This, most industry experts say is unlikely to change in a big way. 

"Global power utilities like the big names from the US, Japan and Malaysia (who are yet to make an entry into India), may take longer to decide on buying power assets, as they are a long-term players, 25 per cent returns may make the cut for them," said a banker from a private investment banking firm. He added returns of more than 20 per cent, the same at which the current assets seem to be going, may make it interesting for funds, specifically stressed asset funds. 

Some funds have made inquiry for assets that are likely to go to National Company Law Tribunal (NCLT), but none of these are from global power utilities.

"Global power producers and utilities from West Asia and other private equity funds may have a fundamental interest in such assets but the interest will translate into a bid only if they see what lies ahead in terms of business potential for these assets post-resolution," said a partner with one of the Big Four in the country.

Investment bankers point out the key difference between the steel assets and those in the power sector is the demand outlook and the regulatory nature. "Power is regulated, and steel is open with demand looking up, which made it easy for a Liberty House to step in," said the banker quoted earlier.

UK-based Liberty House was a bidder for ABG Shipyard and Bhushan Power and Steel and managed to win two assets in the insolvency process- Amtek Auto and Adhunik Metaliks. According to sources close to Liberty House, the company is looking at power assets too. However, not everyone is confident there would be newer names as buyers. 

The valuations quoted so far for assets like GMR Chattisgarh Energy, Jaypee Group's Prayagraj Power Generation and KSK Mahanadi may give some hope for a larger set of buyers to step in. 

Industry analysts also point out at the current valuations, these stressed power assets are a good de-risk exercise for the existing power companies which set up plants at a cost of more than Rs 60-70 million per megawatt. In addition, industrial conglomerates in India are also expected to look at these assets to

secure captive power assets, where feasible. 

To be able to find buyers of a diverse profile, the agencies involved will need to find a long-term solution to both fuel security and offtake agreement issues for these plants.