Distressed asset deals have shown an increase in the power sector in recent years, with cases being filed under the Insolvency and Bankruptcy Code (IBC), introduced in 2016. A key stressed asset update last month was India’s largest hydropower company, NHPC Limited, beginning the process to merge Lanco Teesta Hydro Power Limited (LTHPL) with itself. Earlier, in October 2019, NHPC had won the bid to take over LTHPL and the implementation of the 500 MW Teesta VI project in Sikkim under the corporate insolvency resolution process (CIRP). This was the first time that a public sector undertaking had won a project under the IBC.
A closer look at this merger and acquisition deal…
Teesta VI is a run-of-the river project located in Sirwani village in Sikkim. The 4×125 MW project will utilise the power potential of the Teesta river basin in a cascade manner. It involves the construction of a 26.5 metre high barrage across the Teesta. The estimated power generation from the project is 2,400 MUs in a 90 per cent dependable year.
In terms of physical progress, as of September 2020, two packages of civil works, one package of hydromechanical works and four packages of electrical and mechanical works have been awarded. Tendering of the balance packages is in progress. The Covid-19 lockdown affected mobilisation of manpower and machinery by the contractors; however, free interstate movement has been allowed by the Sikkim government since October 2020. A contract agreement has been signed with a civil contractor, and planning and establishment works, including the obtaining of the necessary approvals from the state administration, are being taken care of by the contractors. Further, land for permanent works, quarry and dumping has been handed over to the civil contractors.
The Teesta VI project was earlier proposed to be developed by the special purpose vehicle, LTHPL, promoted by the Lanco Group, but these plans were halted owing to a financial crunch.
The National Company Law Tribunal (NCLT) started insolvency proceedings against LTHPL after admitting a plea by its lead lender, ICICI Bank, on March 16, 2018. Accordingly, the CIRP was initiated by an order, dated March 2018, passed by the NCLT, Hyderabad bench. In the subsequent bidding process under the NCLT, NHPC emerged as the highest bidder. Besides NHPC, Satluj Jal Vidyut Nigam Limited had also bid for the debt-ridden company. Subsequently, in March 2019, the Cabinet Committee on Economic Affairs approved the proposal for the acquisition of LTHPL and the execution of the balance works for the Teesta VI project. The investment proposal cited an estimated cost of Rs 57.48 billion (at a July 2018 price level), including a bid amount of Rs 8.97 billion for the acquisition.
As per the approved resolution plan, NHPC will pay Rs 8.77 billion to the financial creditors while Rs 111.2 million will go to the operational creditors of LTHPL. NHPC will fund the project at a debt-equity ratio of 70:30. The project will supply power at a levellised tariff of Rs 4.07 per unit and is likely to be completed in the next four years.
The road ahead
NHPC currently has an installed capacity of 7.07 GW (6,971 MW of hydro and 100 MW of renewable energy) and has five projects, aggregating 4,924 MW, under construction. Apart from the Teesta VI project, these are the Subansiri Lower (2,000 MW), Parbati II (800 MW), Pakal Dul (1,000 MW) and Kiru (624 MW) projects. The company plans to incur a capex of Rs 52.56 billion in 2020-21.
The LTHPL merger is a significant step for NHPC, and reinforces its position as a premier hydropower generator with a pan-Indian presence.