29 May 2019: Government-owned Power Finance Corporation Ltd. has seen more than half of the loans it gave to private power projects turn bad, showed information released by the company on Wednesday.
PFC lends extensively to both government and private power projects. While the asset quality of government-driven projects has held up well, 55 percent of loans to the private sector have turned bad.
PFC is exposed to 29 stressed power projects across the country, of which 14 projects are being resolved under the Insolvency and Bankruptcy Code, Rajeev Sharma, chairman of PFC told BloombergQuint. PFC has a total exposure of Rs 17,647 crore to these 14 projects, according to the company’s investor presentation.
Insolvency proceedings are underway in six of these 14 projects, where PFC has an exposure of Rs 3,046 crore. Another six projects, to which PFC has an exposure of Rs 12,996 crore, are still to be admitted for insolvency. According to the company’s presentation, the NCLT passed liquidation orders against two projects where PFC had provided Rs 1,635 crore worth of loans.
Around 15 projects are being resolved outside of the IBC process, Sharma said. In eight of these projects, where PFC has an exposure of Rs 10,186 crore, resolution plans are being discussed but are yet to be finalised. Some of these projects include GMR Chhattisgarh, Rattan India Amravati, Rattan India Nasik and KSK Mahanadi.
- In the case of GMR Chhattisgarh, all 17 lenders have approved a bid by the Adani Group and the deal is likely to close in the next few months. PFC hopes to recover 50 percent of its exposure to that project.
- Rattan India Amravati is in an advanced stage of settlement and the developer has submitted a resolution plan to restructure the project.
- In the case of KSK Mahanadi, lenders had received an offer from a prospective bidder but this was later withdrawn. Therefore, lenders have decided to take the company to NCLT.
- PFC has a total exposure of Rs 1,400 crore to Dans Energy, Shiga Energy and Essar Transmission. In each of these cases, the lender expects 100 percent recovery.
Sharma told BloombergQuint that the process for resolving the remaining 15 projects would depend on the revised stressed asset resolution framework that the RBI is likely to release. “Once RBI issues a new circular we will take appropriate decisions with other lenders to resolve the remaining stressed assets,” he said.
Improved Earnings Performance
PFC reported a net profit of Rs 2,118 crore in the fourth quarter of FY19, a jump of 116 percent over the comparable quarter last year. The lender saw its loan book grow 13 percent in FY19.
It’s gross bad loans stood at 9.39 percent, while net bad loans were at 4.55 percent.
Sharma explained that around 83 percent of PFC’s loan book is to government projects, discoms and state power projects, none of which have turned into bad assets. This has helped the lender keep the overall level of stressed assets in check despite the poor track-record of private power projects.