Promoters of around 30 thermal power projects including GMR Chhattisgarh Energy, RattanIndia Amravati, Avantha Power's subsidiary Jhabua Power Plant, Jaiprakash Power Ventures, GVK, IL&FS, Essar, Jaypee, Coastal Energen, that had got classified as non-performing assets (NPA) as per the circular, stand to get a "breather".
RBI's circular prescribed rules for recognising one-day defaults where the exposure is over Rs 2,000 crore. It directed the banks to initiate insolvency process if a resolution plan was not arrived at within a period of 180 days.
The circular had also done away with the earlier restructuring schemes such as the Corporate Debt Restructuring (CDR), Sustainable Structuring of Stressed Assets (S4A), Strategic Debt Restructuring (SDR), Flexible Structuring of Existing Long Term Project Loans and Joint Lenders Forum for resolving potential bad debts.
This order mean that all these schemes have come back to resolve such power projects- Restructuring Services, Grant Thornton Advisory Pvt Ltd. The circular has been set aside, "the Insolvency and Bankruptcy Code (IBC) has constitutional validity and the bankers or lenders still have the right to take stressed companies or projects under the IBC. This right has not been taken away from the lenders.
The Supreme Court's decision is likely to result in a further slowdown in the already tardy pace of resolution of stressed assets in the power sector. This apart, the resolution process is in any case subjected to regulatory risks, as exemplified in the case of the Prayagraj Power asset, where the regulator has given a recent directive for a discount in power purchase agreement tariff while allowing the shareholding change approval for the same.
The power sector has hailed the order relating to loan repayment of stressed accounts. The companies said it will provide much-needed respite and alleviate the stress in the sector.Shares of power companies gained up to 12% on Tuesday. RattanIndia Power zoomed 12.18%, KSK Energy Ventures 4.60%, Adani Power rose by 2.88% and Jaiprakash Power Ventures 2.69% on BSE.
Association of Power Producers (APP) said the circular had outlined impractical conditionalities and timelines for resolution and also had an inbuilt bias against the existing owners of stressed projects. "We welcome this decision since, with the threat of Insolvency and Bankruptcy Code proceedings mitigated, power companies and lenders will have some breathing space as well as flexibility to restructure debts in a manner which ensures continuity and value maximization for lenders as well as power companies
Supreme Court's order quashing Reserve Bank of India's circular on the resolution on bad loans will only the delay resolution of stressed power assets in India