RattanIndia Power Limited has successfully completed one of the biggest debt resolution exercises in the power sector by bringing in leading foreign institutions. American multinational financial company Goldman Sachs and global alternative investment adviser Värde Partners have taken over the company’s debt from the existing lenders in a unique one-time settlement (OTS), thereby reviving the stressed power producer.
RattanIndia Power operates 2,700 MW of coal-based capacity in Maharashtra and has been reeling under financial stress owing to suboptimal operation of its generating assets due to low offtake by discoms. As a result, the company’s lenders led by the Power Finance Corporation (PFC) and State Bank of India (SBI) initiated an insolvency case against RattanIndia Power as per the Reserve Bank of India’s (RBI) circular dated February 2018. However, the case was withdrawn in mid-2019 after the Supreme Court squashed the RBI’s circular as ultra vires. Following this, the company began discussions with various lenders regarding debt settlement and concluded the OTS transaction in December 2019.
Rajiv Rattan, chairman and promoter, RattanIndia Power, said in an official statement, “We have built world-class operating plants, which require a comprehensive capital structure solution. We have been working closely with our lenders to find a solution to financial stress. Today is a big milestone in the company’s history with marquee investors joining us for a one-time settlement resolution with our lenders”.
Under the OTS transaction, the consortium of lenders led by PFC and SBI assigned RattanIndia Power’s existing principal debt of about Rs 65.74 billion to a set of new investors, led by Goldman Sachs and Värde Partners, through Aditya Birla ARC Limited for Rs 40.5 billion. This implies a haircut of about 38 per cent on loan recovery for the existing lenders. Notably, this is the first successful scheme to have been closed under the RBI’s Prudential Framework for Resolution of Stressed Assets and the largest in terms of size outside the National Company Law Tribunal (NCLT) framework without any change in the existing management.
The OTS transaction was carried out through an open, transparent global Swiss challenge auction process. As per the company, the transaction values the company’s generation assets at Rs 30 million per MW as against a value of Rs 12 million-Rs 15 million per MW discovered under most deals resolved as per the NCLT framework. This has unlocked greater value for the company’s stakeholders.
Aman Singh, Chief Executive Officer, RattanIndia Power, said in an official statement, “This debt resolution has been the first of its kind in the stressed power space with overseas investors investing in the Indian power sector. This deal will provide a template for more such foreign investments in stressed assets in the infrastructure sector. This OTS demonstrates the management’s resolve and commitment to enhance the operations and performance of the company”.
RattanIndia Power operates two thermal power projects (TPPs) of capacity 1,350 MW each in Maharashtra – the Amravati TPP and the Sinnar TPP (or Nasik TPP). Both projects comprise five subcritical units of capacity 270 MW each.
The Amravati TPP was commissioned in March 2015 and has a long-term power purchase agreement (PPA) for the supply of 1,200 MW to Maharashtra State Electricity Distribution Company Limited (MSEDCL). The PPA was signed following Case–I tariff-based competitive bidding at a levellised tariff of Rs 3.26 per kWh. The company has a fuel supply agreement (FSA) for 5.493 Million Tonnes Per Annum (MTPA) coal with South Eastern Coalfields Limited. During 2018-19, the Amravati TPP reported a plant availability factor (PAF) of 73.57 per cent and a plant load factor (PLF) of 34.45 per cent as against 69 per cent and 40.35 per during 2017-18 respectively. During April-December 2019, the project’s PLF declined further to 32 per cent. The company sold 3,717 MUs of electricity to MSEDCL during 2018-19.
The Sinnar TPP was commissioned in June 2017 and has a letter of intent from MSEDCL for the supply of 507 MW power under a long-term PPA for a period of 25 years. The project has an FSA for 5.226 mtpa of coal from South Eastern Coalfields Limited and Mahanadi Coalfields Limited. The company is in the process of arranging a bank guarantee for signing the PPA and expects to start supplying power after securing working capital. The project originally had approval for selling 950 MW to the Maharashtra government, subject to permission from the Maharashtra Electricity Regulatory Commission (MERC). Although the MERC approved the PPA, it could not be implemented owing to certain litigation issues. Subsequently, the Supreme Court passed an order allowing RattanIndia Power to enter into a PPA with MSEDCL, but BEST Undertaking backed out from purchasing 300 MW power due to the prolonged delay in the adjudication of the dispute.
The company also has a presence in the solar segment. It has an operational solar capacity of 116 MW and about 154 MW of ground-mounted solar projects are under development. In 2017, GE Energy Financial Services (GEEFS) partnered with RattanIndia Power to develop 500 MW of solar assets in the ratio of 51:49 with an investment of $90 million. GEEFS has already invested in the company’s solar projects aggregating 210 MW located in Bhadla (Rajasthan), Allahabad (Uttar Pradesh), Pavagada (Karnataka) and Katol (Maharashtra). There were reports of the company selling its solar business to New York-headquartered Global Infrastructure Partners for an enterprise value of $300 million in April 2019. However, there is no recent update on the deal.
RattanIndia Power reported a total income of Rs 25.29 billion during 2018-19, a decline of 2.7 per cent from Rs 26 billion during 2017-18. Meanwhile, its financial expenditure increased by about 8 per cent from Rs 9.96 billion to Rs 10.75 billion during the same period. The company’s net loss also widened considerably from Rs 4.18 billion during 2017-18 to Rs 27.9 billion during 2018-19. The huge increase in the net loss is due to exceptional items, which primarily include Rs 23.35 billion on account of impairment cost.
As per the company, the suboptimal performance of its TPPs owing to lower offtake by MSEDCL has led to financial stress. MSEDCL did not procure the entire scheduled capacity from the Amravati TPP due to lower demand in Maharashtra although it paid capacity charges in accordance with the PPA. The company is also taking steps to reduce interest cost on the term loan of the Amravati TPP, which stood at about 13 per cent (as per company’s annual report of 2017-18). The company’s quarterly performance during 2019-20 has been better. For the quarter ended September 2019, RattanIndia Power recorded a net loss of Rs 731.7 million vis-à-vis Rs 24 billion in the corresponding quarter of 2018. However, the company’s total income declined by 10.5 per cent, from Rs 6.82 billion to Rs 6.1 billion, in the same period.
Challenges and the way forward
The lack of power procurement bids and the backing down of coal-based power by discoms are the key challenges facing gencos including RattanIndia Power. There is also the challenge of the increasing share of renewable energy. However, central government schemes such as the aggregated power procurement scheme (being implemented by PTC India Limited) and the solar/wind-thermal bundling scheme (proposed by the Ministry of New and Renewable Energy) can help gencos sign contracts for selling power in the near/medium term and thus tide over the tough times. Power sale in the short-term market through trading licensees or exchanges is another option.
For RattanIndia Power too, these schemes and the latest debt restructuring are expected to give it a fresh chance to revive its fortunes.