Lenders to the Avantha Group’s distressed 600 MW Jhabuapowerplant are locked in tough negotiations over the completion of the deal with India’s largest power generator NTPC almost a year after it was declared the winning bidder due to concerns over power demand due to the economic downturn caused by the Covid 19 pandemic.
The bone of contention is the right over the Rs 400 crore earnings before interest tax and amortisation (EBITDA) that the distressed company has made this fiscal. Lenders say the amount should go to the creditors while NTPC says it has to go to the winning bidder.
“NTPC has said if creditors keep the EBITDA, it will reduce the price its offering from Rs 1900 crore to Rs 1100 crore. This is where the deal is stuck,” said a person familiar with the discussions.
The deadlock over this asset highlights the challenges to debt resolution to distressed power plants in India beseiged by lack of power purchase agreements, coal linkages and the economic recession caused by the Covid 19 pandemic which has hurt corporate demand.
Jhabua was a success story in that sense as NTPC had outbid the Adani Group by two-and-a-half times and was the highest on a per-megawatt basis in terms of valuations of a stressed asset in the power sector, though at Rs 1900 crore was still a 62% haircut to the Rs 5000 crore debt owed by the company. The company was taken to the NCLT in May 2019 due to lack of working capital, despite it being an operational plant. The admission into NCLT was after restructuring by a group of lenders could not work out in 2018-19.
NTPC’s bid values the unit at Rs 3.2 crore per mw against the construction cost of Rs 6 crore for new projects. Adani Power had valued it at about Rs 750 crore, or Rs 1.25 crore per mw.
Jhabua was also the first time that the state-run power producer had bid for any stressed project. The company has decided against buying any stressed projects outside the Insolvency and Bankruptcy Code (IBC).
NTPC did not reply to an email seeking comment. However, a senior NTPC admitted that there were concerns regarding power purchase agreement (PPAs) between the plant and the state governments.
Lenders are however confident that the differences will be resolved. “Negotiations are going on and things will be addressed. It sometimes takes time but we trust NTPC will honour its commitment,” said another person aware of the deal.
Lenders said the project has PPAs and NTPC has apprehensions that state discoms may renege the contracts due to lack of demand post Covid. Lenders have denied any possibility of price negotiations as the due process was followed under the IBC. NTPC has submitted a bank guarantee of Rs 5 crore for the project.
Getting resolution processes through is important for banks as bad loan recovery is slow and new cases to the NCLT under the bankruptcy law are suspended this fiscal because of a government order.