Stressed power assets: RBI denies waiver for REC's Pariwartan framework

REC seeks banks' support for framework to be also used for assets landing in NCLT

The Pariwartan framework for resolving stress in the power sector, drafted by Rural Electrification Corporation (REC), could soon be also used for assets landing in the bankruptcy court, with the public financial institution seeking banks' support on this. The move comes after the Reserve Bank of India (RBI) refused to give any concession for REC’s asset restructuring company (ARC), being planned under the framework.

REC had asked the RBI to waive the mandatory subscription requirement for the ARC. Under the RBI norms, lenders have to cumulatively pay the subscription amounting to 15 per cent of the net book value of assets identified by the ARC. Since the central bank denied any relaxation, REC has approached other lenders for contributions to the minimum subscription requirement.

The RBI had earlier turned down the government's request for a special 180-day window for identified stressed power plants.

REC came up with the Power Asset Revival Focused Warehousing & Revitalisation (Pariwartan) framework after the RBI circular, to avoid further distress in the sector. REC is now building a consensus among lenders to use this mode of resolution when assets land in the National Company Law Tribunal (NCLT).

REC wanted lenders to adopt Pariwartan to save capital erosion in the power sector, said sources, adding that being a sector expert, it would manage the stressed assets better.

The 180-day deadline set by the RBI’s February 12 circular to resolve 40,000 MW stressed power assets ended on August 27. According to the circular, lenders were required to file for insolvency under the Insolvency and Bankruptcy Code (IBC) within 15 days of the deadline getting over.

A senior public sector bank official said there was no consensus among lenders till the deadline ended, on issues like how to manage these assets, and the price at which the assets get transferred. The process of ARC taking over a stressed asset will be in line with the IBC. Leading lenders such as Power Finance Corporation, Punjab National Bank, Axis Bank, Union Bank, and Central Bank are yet to give their approval for their participation in Pariwartan.

There was another issue, that who will manage these power assets and fulfill the capital requirements in the next 2-3 years. “Even if we take the assets to the NCLT, because of the Clause 29A of the IBC, which entails the change in the promoter, the power purchase agreements (PPAs) have to be redone. PPA is signed by a particular promoter. In case of a change in ownership, these have to be re-entered into. The new owner may also want to examine the PPAs,” a bank executive said requesting anonymity.

In a meeting held on Wednesday in the power ministry, officials said REC had short-listed 11,470 MW projects, which are complete, and sought a similar list from banks. It might also look at incomplete projects for putting them under the framework if they are 80 per cent complete.

NTPC will be the operation and management partner in the ARC. The largest power generator in the country has not shown interest in taking equity in the ARC. However, sources said, it would evaluate equity infusion on a case-to-case basis.

De-stressing the sector

• Power Asset Revival Focused Warehousing & Revitalisation (Pariwartan), created by REC, will set up an asset restructuring company for stressed power assets
• The framework aims to have banks and NTPC as operation and management partner on board
• REC has identified 11,470 MW of thermal power projects for Pariwartan
• ARC is to be used when assets land in insolvency court

Power Finance Corporation’s three assets may land in NCLT

The three stressed power assets that Power Finance Corporation (PFC) was attempting to sell to recover debt are likely to land in the insolvency court, as the consortium of lenders has been unable to finalise the buyer. PFC received over a dozen bids for the assets — GMR Raikheda (1,370 MW), KSK Mahanadi (2,400 MW), and Avantha group-owned Jhabua Power (600 MW) — in June.

Sources said the lenders did not approve any bid because these were “too low”, which would have resulted in banks taking huge write-offs. Leading infrastructure players such as Adani Power, Vedanta, JSW Energy and global banking giants such as JM Financial, Bank of America Merrill Lynch, and Edelweiss had bids for the three projects. Lenders have to file for insolvency by September 11 in accordance with the RBI's February 12 circular.