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RBI move on debt recast will boost stranded power projects

RBI governor Raghuram Rajan’s announcement on debt restructuring of stranded projects will ease cash flow situation and improve their financial health, said industry experts and executives from power generation companies.

The governor said that during the next few days the bank will announce two key relaxations – extending the 5/25 rule to loans of existing projects which are categorised as standard and allowing banks to take equity in restructuring to a greater extent than current permissible limit. Rajan said the the central bank was in discussions with Securities and Exchange Board of India (Sebi) on issues like conversion price.

The 5/25 rule allows for periodic refinancing of loans of 25-year tenures. The norm was introduced in July and was made applicable only for new project loans.

“Allowing banks to take equity in debt restructuring is a step in the right direction,” said Avantha group director (finance) B Hariharan.

“We welcome the positive indication from RBI to extend the benefit of 5/25 rule to existing projects. This will ease the debt payment profile of power companies from existing 10-12 years and will improve cash flow situation,” said Ashok Khurana, director general of Association of Power Producers.

The association had met the RBI Governor last month to discuss plans for debt restructuring of stranded power plants awaiting fuel supply and unfulfilled fuel linkages.

The private power producers also requested that in case of projects stranded for unavailability of fuel, the assets be classified as ‘standard’, defer the interest and capitalize the same, reduce the interest rate to SBI Base Rate till plants are operational and extend the loan tenure suitably.

The association which represents power producers from private sector is looking at the financiers to provide additional debt of 10% of project cost which can be replaced with equity invested by developers / strategic investors within a specific period after commercial operation date.

In presentation made to the RBI chief, APP said of the 136 gw stranded power generation capacity with an investment of Rs 6.23 lakh crore, around Rs 4.36 lakh crore is feared to convert into non-performing assets (NPAs). Existing power generation capacity of 16,000 mw is under stress for want of cheaper domestic gas. Close to 28,000 MW of power capacity is stranded due to de-allocation of coal blocks. Supreme Court in its recent judgment cancelled 204 coal blocks of cumulative capacity of 45,000 million tonne allotted over the past two decades.

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