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► Power industry has been facing inherent sectoral issues which are
fundamental to their survival
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Identifying the problem
► Ensuring coal supplies (FSAs) – making coal available for IPPs with tied-up
capacities
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Financial Re-engineering to
deal with Power Sector
Stress
An attempt to resolve
Financial Re-engineering (1/3)
► Put aside power assets which either are under-construction/ dormant
or do not have tied-up capacities and/ or coal linkage - Identify and
segregate power assets which can be salvaged
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An attempt to resolve
Financial Re-engineering (2/3)
► Develop long term capital market/ bond market
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An attempt to resolve
Financial Re-engineering (3/3)
► An example - Road sector
► With visibility of revenue and long term tolling arrangement, we now see a lot of
investor interest wherein infrastructure funds such as Cube Highways, IFC etc are
not financing and backing such road projects
► Coal linkages are not cancelled; supply ensured to IPPs with tied-up capacities;
► Pass-through of increases in input costs;
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Developing an Institutional
Framework for Resolution
Background
Sub-optimal resolution structures
► Assets cumulating to 36GW have been identified which are in financial stress;
► Multiple initiatives taken by Government and RBI towards resolution of power
assets:
► Lenders are contemplating to resolve the stressed power assets under IBC,
however, CIRP process has its own set of inherent challenges;
► There is a need to address the regulatory aspects of formulating and
implementing resolution plan in the power sector;
► Considering the above factors, following aspects may need to be addressed
in order to migrate to a congenial regulatory environment:
Need for
Reduce litigation/ Insulating investors Ease of divestment Impact of IBC
modification to RBI
scrutiny for lenders
circulars
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Points deliberated
► IBC, a process to resolve assets / companies. However, IBC cannot work if issues
Limitations of impacting underlying sustainability of assets are not solved
resolution process
► Process delays and litigations hindering timely resolution
► Sanctity of existing concessions, say PPAs and FSAs post implementation of Resolution
plan remains to be tested
Legal & lenders
► 100% Lender approvals under Feb 12 RBI Circular is a practical challenge; however, the
issues
circular, having been adjudged ultra vires, may be modified
► Practical challenges of lenders to approve resolutions with hair cuts in light of increased
public scrutiny
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Recommendations on institutional
framework
► Lenders could consider Pre-negotiated resolution plans (Pre-packs), to be approved by a
certain threshold of lenders); promoter involvement to be discussed as relevant
Pre-packs ► Plan to be put in front of NCLT for confirmation within 30-60 days
► Pre-packs amendments are being considered in IBC
Achieving ► More feasible bilateral restructuring policy to be worked out (before the IBC option is
consensus among actioned) – lender threshold (60% - 75% approvals to cram down the others) and lender
lenders mind set (to approve such viable plans) to change
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Disclaimer
This document has been prepared by EY Restructuring LLP (‘EY’) on the basis of publicly
available information and information obtained from other internal/ external sources, neither
of which has been independently verified by EY. Neither EY, nor any person associated with
it, makes any expressed or implied representation or warranty with respect to the
sufficiency, accuracy, completeness or reasonableness of the information set forth in this
document, nor do they owe any duty of care to any recipient of this note in relation to this
document, and unless specifically pre-agreed in writing, in relation to any other information
which a recipient of this document is provided with at any time.
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