40-50% debt haircut can help boost stressed coal plants: CRISIL report

If haircuts are also supported with elongated repayment structures, lower interest rates, comfortable liquidity and adequate working capital, CRISIL says will make these projects financially viable

Banks will have to take a 40-50 per cent haircut on stressed coal-based power projects in order to safeguard and enhance the viability on a sustained basis, says ratings agency CRISIL. These power projects account for Rs 1 trillion in outstanding debt, and are currently ‘non-performing’ assets, incapable of servicing their existing liabilities. CRISIL said that debt haircuts for these plants can improve the cost of electricity generation in the near term.

If the haircuts are also supported with elongated repayment structures, lower interest rates, comfortable liquidity and adequate working capital, CRISIL says will make these projects financially viable. 

Subodh Rai, senior director at CRISIL Ratings, says, “The haircuts and safeguards, if implemented, would ease debt servicing for these capacities and will, in turn, lower their cost of generation by 30 per cent to Rs 3.7 per unit for the next five years. That would be well below the current average cost of power procurement for state distribution companies.”  Advait Rao Palepu