Tag: Rural Electrification

Bidders make financial offers in the range of Rs 2,600-3,000 crore for Transco in UP, BFSI News, ET BFSI

Personal Finance

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Bidders have submitted financial offers in the range of Rs 2,600-3,000 crore for South East UP Power Transmission Company that is undergoing bankruptcy proceedings because of financial troubles of its majority shareholder, Madrid-based Grupo Isolux Corsan, according to sources..

All four offers will be taken up for negotiation simultaneously by lenders this week, according to the sources.

Four bidders—Tata Power, Adani, Power Grid Corporation of India and Sterlite—have submitted binding bids for the transmission company, ET had reported on August 23.

Tata Power has made a bid through its arm Resurgent Power Ventures.

The highest bidder amongst the contenders has submitted a conditional offer, which is why negotiations are being held with all the bidders, according to a person in the know. Typically, in bankruptcy cases, the creditors negotiate with the highest bidder, loosely termed H1 bidder, before talking to other contenders.

The lenders could recover upwards of 70% of their dues based on the range in which financial offers for the company have been made, the sources said.

Tata Power “doesn’t comment on specific projects or opportunities”, a spokesperson said. The company continues to explore and evaluate various growth opportunities including in the transmission space. “As indicated earlier, the Company is looking at both greenfield and M&A transmission opportunities directly as well as through its stressed asset platform, Resurgent Power Ventures Pte Ltd,” the spokesperson added.

Adani, Sterlite and Power Grid Corporation of India were yet to respond to ET’s emailed queries sent on Monday. Sterlite had declined to comment on whether they had bid for the company in response to a previous set of queries sent to them on August 20.

Grupo Isolux Corsan had won a 35 year concession to build a power transmission network in Uttar Pradesh in 2011. The company had taken on loans of around Rs 3,700 crore from local lenders to fund the construction of the transmission project. The construction stopped after GrupoIsolux Corsan filed for bankruptcy in Spain and the US.

The lenders left with few options, approached the National Company Law Tribunal to start bankruptcy proceedings against the Indian unit. Bank of India, Axis Bank, Power Finance Corporation and Rural Electrification Corporation are among the creditors of the transmission company.

As many as eight parties had shown interest in the preliminary bidding phase for the company. Torrent Power, Megha Engineering, REC Power Development and Consultancy Ltd (Recpdcl) and a sovereign wealth fund are also said to have submitted expressions of interest for the company in March. Not all of them finally made a bid.

The union government has earmarked electricity transmission lines amongst assets that it will monetize alongside ports, airports and sports stadiums in its budget announcements.

The private sector has been consistently demanding that more transmission lines be auctioned to them under the tariff-based competitive bidding process. So far, private players have only a 5% share in the power transmission sector. This contrasts sharply with the power generation sector where private players account for almost half of the capacity.



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How the proposed bad bank will impact IBC?, BFSI News, ET BFSI

Banking & Finance

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After experimenting with debt recovery tribunals, SARFAESI and IBC, the government is setting up a bad bank.

The Union Budget 2021-22 has proposed the setting up of an asset reconstruction company a bad bank and an asset management company, which will rival the current Insolvency and Bankruptcy Code mechanism for large corporate loans.

Experts say loans greater than Rs 500 crore that have not been declared fraudulent will be transferred to the bad bank, statement of several senior officials in the government as well as Indian Banks Association have indicated.

Currently, all insolvency resolution cases are dealt by the IBC, which has been under suspension till March 24, 2021.

It is highly likely that the underlying companies would not be subjected to IBC in the first instance, rather the AMC will try and either revive these companies or package the loans to an investor, they say.

This is despite ARC is the last resort for bankers as the recovery rate is very low. However, in the case of the IBC, the rate has also been dismal.

Also, creditors of several companies had signed the Inter Creditor Agreement (ICA), pre-suspension and some of these corporates will continue negotiation under the framework roping in distressed asset investors.

IBC performance

The total number of corporate insolvency resolution process (CIRP) cases admitted under IBC till the second quarter of 2021 stood at 4,008, of which 277 ended in resolution, or firms getting new promoters, and 1,025 in orders for liquidation.

The total claims were Rs 10.48 lakh crore (Rs 4.34 lakh crore Gross NPAs plus Rs 6.14 lakh crore Net NPAs) and the realisable” amount Rs 2.2 lakh crore. This amounted to the total haircut at Rs 8.3 lakh crore, or debt recovery working out to be 79%

This dismal debt recovery rate is far lower than the earlier debt resolution processes when the recovery was 25%. Also, most of the debt claims — Rs 6.8 lakh crore or 59% of the total ended in liquidation.

Challenges

Experts say IBC faces new challenges including two-year loan restructuring the RBI allowed in August 2020 due to pandemic disruptions, the Supreme Court‘s September 2020 interim order to banks not to classify loans as NPAs until further orders and dilution of the IBC itself.

After resigning as the RBI Governor in December 2018, Urjit Patel wrote in his book “Overdraft: Saving the Indian Saver” that the government had diluted the IBC and weakened the RBI’s regulatory powers to resolve stressed assets after it issued a “revised framework” on February 12, 2018, asking banks to start resolution process after a day’s default.

The bad bank

Nine banks and two non-bank lenders, including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda

(BoB), are coming together to jointly invest Rs 7,000 crore of initial capital in a proposed bad bank that aims to help extract funds stuck in bad loans. Two other state-run financiers of power projects will also own stock in the bad bank.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank. ICICI Bank, Axis Bank and Life Insurance Corp of India-owned IDBI Bank are also among the shareholders. State-owned Power Finance Corp and Rural Electrification Corp will also be equal shareholders in the new company.



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Bad bank may be led by private lenders for greater flexibility, BFSI News, ET BFSI

Banking & Finance

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Private sector banks and entities are being tipped for taking 51% stake in the proposed bad bank with public sector lenders taking the rest, according to reports.

However, the lenders with links with bad assets housed in the bad bank will not be allowed to invest in it.

How will a private sector-led bad bank help?

With the majority ownership vested in the private sector, it would lead to flexibility in decision making.

The chief economic advisor had pitched for a private sector-led bad bank earlier.

“The bad bank will certainly help in consolidating some of the non-performing assets. It’s important to also think about implementing the bad bank in the private sector that enables (faster) decision making,” he had said.

The move would keep the organisation out of the purview of government scrutiny of Central Central Bureau of Investigation (CBI), Comptroller and Auditor General of India (CAG), Central Vigilance Commission (CVC).

How does the private sector benefit?

There are about Rs 2 lakh crore of toxic assets that can come under the bad bank which the private sector can manage for fees.

The current plan

Nine banks including the State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) and two non-bank lenders are likely to put in Rs 7,000 crore jointly as initial capital in the proposed bad bank that aims to help extract funds stuck in non-performing loans.

Canara Bank, Union Bank of India and Bank of India will join their larger state-run peers as investors in the bad bank along with two state-run financiers of power projects-Power Finance Corp (PFC) and Rural Electrification Corp (REC). All these 11 entities will own an equal stake in the proposed bad bank with little over 9% equity each.

ICICI Bank, Axis Bank and Life Insurance Corp of India (LIC)-owned IDBI Bank are also among the shareholders.

Assets

Lenders have identified about Rs 2 lakh crore of bad loans for which they expect Rs 40,000-50,000 crore. These assets will be transferred to the new ARC at 15% upfront cash, about the level of capital being infused into the company.



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