Banks to take Rs 37,200-cr hit by liquidating 10 power projects: BofA

Combined capacity is 10.5 Gw; projects fail to find any takers under insolvency process

Indian lenders are in the process of liquidating ten power projects, with a capacity of 10.5 gigawatts, across the country after these projects failed to find any takers under the insolvency process. With this, banks will take a hit of Rs 37,200 crore on their exposure to these projects, as per an estimate by BofA Securities.

In fiscal 2018, the Indian government had identified 34 stressed coal projects with a capacity of 40 Gw and bank exposure of Rs 1.7 trillion for resolution under the bankruptcy code. Of this, till now only 12 projects with debt Rs 59,200 crore are resolved by providing coal linkages and signing power purchase agreements with customers till March this year.

Another five projects with a debt of Rs 35,100 crore were resolved through asset sale with banks making a recovery of 44 per cent on their dues.

“Most of these projects do not have any coal linkages or power purchase agreements and could not find any buyers despite an electricity shortage in the country,” said the CEO of a power firm asking not to be named.  

The recovery from these accounts for the banks would be negligible, the official said. In the case of Essar Power Jharkhand, in which banks had an exposure of Rs 4,200 crore, the reserve price for plant and machinery was pegged at Rs 180 crore in March this year.

 

Currently, seven projects including Lanco Amarkantak Power and KSK Mahanadi, with bank debt Rs 45,200 crore are still undergoing the bankruptcy process while the rest of the 10 projects are being liquidated, the American firm said. The projects to be liquidated include East Coast Energy and Lanco Vidarbha Power (see chart).

Banks are also planning to sell the loans of some power projects as the resolution process is getting delayed due to litigation by several parties. In the case of KSK Mahanadi, State Bank of India has sold its loan of Rs 3,800 crore to Aditya Birla group’s asset reconstruction company and the process is undergoing a Swiss challenge - awaiting a rival bid.

Interestingly, the Indian government is planning to increase the capacity of coal based power projects as the country is facing a shortage of electricity generation. As per the plan, India will add 27GW of thermal capacity by fiscal 2026. Of this, the state governments will add 15.6 GW of additional capacity and the central government will add 12GW led by NTPC, an Indian government owned electricity generation company.