30 May 2019: Power Finance Corp. Ltd (PFC), the largest financier for the domestic power sector in India, is increasing its borrowings from the international market in 2019-20 to tide over a liquidity crunch in the country. Out of PFC’s fund-raising target of ₹80,000 crore for the current fiscal year, it will raise 10% in foreign current borrowings and increase its target to 15-20% over the next two years.
“We don’t foresee a problem in meeting our fund-raising target this year,” Rajeev Sharma, chairman and managing director, PFC, said in an interview. “Our focus is on diversification and we will increase the foreign currency borrowing to 10% this year. When I joined PFC in October 2016, foreign currency borrowing was only 2-3% of the target. This will increase to 15-20% in the next two years.”
PFC will look at external commercial borrowings and syndicated debt in international markets to meet its 10% target, while the remaining will come from “widening the low-cost 54EC (capital gain) bonds, taxable bonds and by tying up bank loans,” Sharma said. PFC’s cost of funding for FY19 was 7.95% and it will chase the foreign currency borrowing target for the current year only if its cost of borrowing is lower abroad than in India. “PFC is also exploring a different funding structure such as loans with staggered maturity, which will be effective for asset-liability management,” Sharma added.
Sharma addressed reporters to announce the company’s earnings performance for the year. For the March quarter, PFC reported stand-alone net profit of ₹2,117.56 crore, up 165% from ₹796.35 crore in the year-ago period. Its earnings have stabilized after a host of bad loan provisioning through FY18. Revenue for the quarter stood at ₹7,636.40 crore, against ₹6,085.78 crore, up 25%. For the full year, net profit was ₹6,952.92 crore, an increase of 58%. At the end of FY19, PFC had a loan book of ₹3.15 trillion, growing at 13% year-on-year. It has a capital adequacy ratio of over 17% and net interest margin of 3.37%. Its stressed asset portfolio of roughly ₹29,000 crore has been provisioned up to 51% and further provisioning might not be necessary.
“Of the total, 15 projects are under NCLT (bankruptcy process) while we are pursuing one-time settlement options and other resolutions for the remaining 14,” Sharma said.
“In Q4, GVK Ratle Hydro Electric project, where PFC had an exposure of ₹800 crore, has been upgraded as a standard asset,” Sharma said. After the Supreme Court struck down the RBI’s February 12 circular on treatment of non-performing loans this April, NCLT petitions for 3 projects – with exposure of ₹8000 crore – were withdrawn. Of these Rattan India Amravati and Rattan India Nasik are being resolved, while the KSK Mahanadi project (by KSK Energy ventures) will be taken to bankruptcy court again. PFC is also expecting full recovery of ₹1400 crore fomr Dans Energy, Shiga Energy and Essar Transmission over the next 3-4 months while it expects up to 50% recovery on the ₹5800 crore lent to GMR’s Chattisgarh project within 2 months’ time.
During FY19, PFC completed its buyout of the central government’s 52.63% stake in Rural Electrification Corporation for ₹14,500 crore, and consolidated net profit for the year was ₹12,640.27 crore on revenues of ₹53,435.70 crore. Sharma said that with PFC’s “excellent showing in results in FY19, the concerns raised by investors and the markets (about the merger) are ended. There is total synergy between the two. However, the Ministry of Power will take the final call on the direction that the merger will take.”
Given the stress in the power sector, new thermal power plant proposals are thin on the ground. So going forward, PFC has decided to expand its lending portfolio to increase the share of transmission and distribution (which now stands at 28% of the loan book), renewable energy (which now stands at 5% of the loan book), electrical components of lift irrigation projects, sewage treatment plants and electri vehicle charging infrastructure.