The restructuring efforts of the debt-laden IL&FS Group’s power arm, IL&FS Tamil Nadu Power Company Limited (ITPCL), moved forward last month with one of its creditors, PTC India Financial Services (PFS), approving the resolution plan of its loan account. Once this plan is approved by the National Company Law Tribunal/ National Company Law Appellate Tribunal, the loan account will be converted to the “green” category from the “amber” category. ITPCL owes over Rs 67 billion to its lenders from 19 banks and financial institutions, led by the Punjab National Bank (PNB). A closer look at this development….
ITPCL, a special purpose vehicle, was incorporated by the IL&FS Group for the implementation of an imported coal-based thermal power project at Cuddalore in Tamil Nadu. Phase I of the project, comprising two units of 600 MW each, has been operational since September 2015. The consent to operate Phase I is valid up to March 31, 2021, following which the consent is to be renewed.
The company had planned to set up 3,180 MW of thermal power capacity and had the land and all requisite approvals in place. However, the expansion plans have been shelved for the time being, given the uncertainties.
The company has a long-term power purchase agreement (PPA) with the Tamil Nadu Power Generation and Distribution Company (TANGEDCO) for 540 MW of capacity, and a medium-term PPA with Power Trading Corporation of India Limited (PTC) for 550 MW. According to IL&FS, a key impediment in the restructuring of ITPCL has been the non-payment of about Rs 14 billion (as of November 2019) towards outstanding dues by TANGEDCO and PTC.
The IL&FS Group’s overall debt reduction plan started in October 2018. Since most of the group companies were unable to meet their liabilities, the IL&FS board began the process of drawing up a resolution plan for all the companies. As part of the resolution process, the various group companies have been classified according to their ability to meet payment obligations. ITPCL has been categorised as “amber” since it has not been servicing the interest and principal on the term loan to the senior secured lenders and other debt obligations since November 1, 2018. Given the situation, the banks have restricted the usage of the working capital limits, including the letters of credit limits, which were used for the procurement of coal.
PFS has approved the resolution of the ITPCL loan account in line with the lead bank, PNB. The restructuring plan includes a sustainable portion (59.38 per cent) of Rs 1.25 billion, proposed to be repaid in 70 structured quarterly instalments from the December 2020 quarter to March 2038.
For the unsustainable portion (40.62 per cent) of Rs 861.4 million, it has been proposed that 0.001 per cent of non-convertible debentures will be allotted to the senior secured lenders, and will be redeemed in two annual instalments of 50 per cent each in 2038-39 and 2039-40. There will also be a reversal in interest on the unsustainable portion and a reversal in differential interest on the sustainable portion, with an approved rate of interest of 8 per cent as per the resolution plan.
Of the total outstanding amount of Rs 2,249.5 million, comprising the principal amount of Rs 1,838.4 million and interest of Rs 411.1 million, PFS had already made provisioning of Rs 663.9 million as of the period ended September 30, 2020.
PFS also recently achieved the resolution of another of its non-performing asset loan accounts in the hydro segment, Dirang Energy Private Limited’s 2×72 MW hydroelectric project in West Kameng district of Arunachal Pradesh. The resolution was achieved under a one-time settlement proposal offered by the borrower’s promoter company, Patel Engineering Limited, to all the consortium lenders on a bilateral basis.
For now, the restructuring of its debt to a sustainable level, combined with the reduction in interest rates, should ease the cash flow needs of ITPCL. However, in the Covid-19 scenario, the company still faces the risk of a delay in the settlement of receivables by the procurers, which, in turn, is likely to result in a cash crunch. TANGEDCO has been sanctioned a long-term loan by Power Finance Corporation Limited/ REC Limited as a part of the Government of India’s liquidity infusion scheme, to settle the outstanding dues of independent power producers and to overcome the liquidity issue. The timely settlement of receivables (including past overdues) by the procurers will be critical for the successful implementation of the restructuring plan.