A Winning Deal

NTPC acquires Jhabua Power

In a marquee deal, the country’s lar­gest power generator, NTPC Limited recently acquired 50 per cent stake in Jhabua Power Limited (JPL), its first ac­quisition through the Corporate Insol­vency Resolution Process (CIRP) initiated by the National Company Law Tribu­nal (NCLT). JPL owns and operates a 600 MW coal-based thermal power plant (TPP) in Seoni, Madhya Pradesh, while another 660 MW of capacity is under development. The acquisition has taken NTPC’s ins­talled capacity to 70,064 MW – a step forward in meeting its ambitious capacity ad­dition target. The company has set a goal of achieving an installed capacity base of 130 GW by 2032 from a diversified portfolio and has, therefore, been on the lookout for capacity addition opportunities through both organic and inorganic routes.

Background

JPL, a part of the Avantha Group, was referred to the NCLT (Kolkata bench) in May 2019 after it defaulted on a payment of Rs 350 million to an operational creditor, FLSmidth Private Limited, due to lack of working capital. Earlier, in 2018-19, a debt restructuring exercise by the lenders had also not yielded the desired results. Although Avantha Hold­ings Li­mi­ted (AHL) made a one-time settleme­nt offer to the tribunal, it was rejected for being commercially unviable.

Among the various bidders in the fray for JPL, NTPC emerged as the highest bidder, reportedly with a bid of Rs 32 million per MW. Adani Power is estimated to ha­ve submitted a bid of Rs 12.5 million per MW. The nearly Rs 19 billion bid for JPL by NTPC for the 600 MW stressed asset meant a steep haircut of 62 per cent for the lenders, which were owed around Rs 50 billion in loans by JPL.

NTPC submitted its first resolution plan in December 2019 but the acquisition pro­cess for the stressed asset was fra­ught with hurdles, since one of the cl­auses in the Insolvency and Bank­ruptcy Code (IBC) prevented the bidders from buying insolvent companies if they or their associate companies had a track re­cord of default. NTPC owns stakes in Ratnagiri Gas and Power Limited and Ko­nkan LNG, which had defaulted on loans before JPL’s insolvency proceedings began. Subsequently, legal proceedings ensued at the National Company Law Appellate Tribunal (NCLAT) as well as the Supreme Court as AHL had filed a disqualification plea against NTPC. In July 2022, NCLAT upheld NCLT’s order, which had declared the NTPC as the su­ccessful applicant in the insolvency resolution of JPL.

Deal details

The deal is unique as NTPC and the lenders have jointly taken over the project. NTPC has offered 50 per cent equity stake in JPL to the secured financial creditors and retained all management rights and control over the company. The deal value has not been disclosed but media reports state it to be nearly Rs 19 billion. The shareholders’ agreement was signed between NTPC, JPL and the secured financial creditors on Sep­tem­ber 5, 2022.

Power Finance Corporation Limited (PFC) is the largest lender to JPL. As per an official press release by PFC, “The transaction is uniquely placed, with the participation of NTPC, the largest power generating company in India, and also in terms of lenders being offered a matching equity stake in the project, in addition to the debt instruments and upfront payment received by them.” PFC further stated that this is another step forward in its stressed asset resolution efforts. At the end of the first quarter of 2022-23, PFC’s net non-performing asset (NPA) ratio stood at 1.73 per cent, the lowest in the past six years, and is likely to fall further with JPL’s resolution.

The other lenders to JPL include REC Limited, State Bank of India, Axis Bank, Bank of India, the Life Insurance Corpo­ra­tion of India, Punjab National Bank, UCO Bank and Union Bank of India. Consulting firm Alvarez & Marsal completed the CIRP.

The way forward

The resolution of JPL via the CIRP is indeed a step forward towards reducing st­ressed assets in the power sector, whi­ch has been quite slow in recent times. Given NTPC’s vast experience in the the­r­mal power sector, it is poised to operate the Seoni TPP in line with its high operational standards. Moreover, the power plant comes with long-term po­wer purchase agreements with Madh­ya Pradesh and Kerala as well as fuel linkages with Coal India Limited, making the transaction an accretive one.

Going forward, more projects are ex­pected to be resolved under the IBC as nearly half of the 40 GW of stressed asset capacity is before the NCLT. Some of this capacity may find buyers given that thermal power will be key to the nation’s energy security at least in the near term, as there has been a revival in power demand post-Covid and renewables are still taking time to catch up. n

Neha Bhatnagar

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