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The battle for power companies starts

The Reserve Bank of India, in its ongoing struggle to resolve India’s banking crisis, had issued a circular on 12.2.2018, directing banks to resolve large corporate defaults within 180 days, or else initiate bankruptcy proceedings against these companies in the NCLT. This 180 days deadline started on 1.3.2018 and applied to all those NPA defaults which exceeded Rs.2000 crores per company. Most of these loan accounts had already been classified as bad loans and had been suitably written off in the bank books of accounts as losses. Thus this direction of the RBI was more meant to clean up bank balance sheets than to provide for further losses towards these loan defaults. The deadline of the RBI expired on 27.8.2018, but little got resolved. All these loan accounts have remained unresolved and now the end rites to close the NPAs are imminent.

Of the 70 companies affected, a few borrowers that had defaulted, fearing bankruptcy and closure approached the Allahabad High Court seeking a stay on the RBI circular. The High Court refused to do so and directed the Central Government to initiate suitable action against these defaulters. That means that the banks and the borrowers cannot delay the inevitable anymore ie. bankruptcy or sale or change of management or a restructuring of the loan, in a rare case. A report says that of the seventy companies, some 20 cases are being referred to the bankruptcy courts, twelve are being restructured or sold and for the remaining, the banks are yet to decide on the course of action. Those being referred to bankruptcy proceedings, where the NCLT is likely to call for bids, including Essar Power, West Power Co. Ltd. etc. while those being restructured include Videocon Oil Ventures Ltd. GMR Rajahmundhry Ltd. and Jaiprakash Power Ventures Ltd.

The refusal of the Allahabad High Court means that 34 power project companies, which have defaulted on their bank loans, will be up for sale under the NCLT proceedings. Like in the case of steel companies, stressed power projects are a very attractive buy for those with the big bucks. A stressed power plant may be a closed one but can be restarted immediately, with the infusion of funds. There will be a queue of bidders for these companies, eager to snatch them for a song and turnaround the stalled projects quickly and profitability. While the ARCs like Edelweiss in the hunt, have already started submitting bids to banks to takeover stressed power plants at huge discounts, in a few cases the banks have already concluded takeover of these projects, as in the case of Prayagraj Power Generation Co. Ltd. being sold to the Tata Group and the SKS Power Generation (Chattisgarh) Ltd., sold to the Singapore based Agritrade Resources.

Thus while little resolution of stressed loan account by banks took place during this 180 days deadline set by the RBI, it has now set the stage for resolving these cases through the last rites manner. A dogfight for the lucrative projects in the power sector is on the cards like we have witnessed in the case steel projects and much as the power plants will be sold for huge discounts, they will at least not rot and will be commissioned thereafter. The RBI did succeed in fixing 27.8.2018 as a cleanup deadline and with the Allahabad High Court denying any further extension or relief, it looks like the power sector, in particular, will witness a massive restructuring and revival, and a number of stalled projects will be revived.  

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