For asset reconstruction companies (ARCs), the cumulative recovery rate for stressed operational thermal power plants (TPPs) is set to improve 700 to 900 basis points (bps) on-year to 83 to 85 per cent next fiscal, driven by robust growth in power consumption on the back of adequate coal availability, timely payment by distribution companies (discoms) and expected healthy merchant power prices.
Crisil Ratings stated these industry tailwinds are not only supporting faster resolutions but may also aid the resolution of 5 GW of stressed TPPs over the next two fiscals. An analysis of the security receipts (SRs) rated by CRISIL Ratings Ltd for stressed operational TPPs with a principal debt of Rs 18,000 crore across 4 GW (50 per cent of operational TPP capacity with ARCs), indicates as much.
It added that power consumption is expected to rise 6 to 7 per cent this fiscal, driven by a surge in demand from the commercial and industrial (C&I) segments, and growing urbanisation. In this milieu, thermal power generation companies (gencos) are likely to capitalise on the opportunity by improving their plant load factor (PLF).
“Government initiatives had improved coal availability for TPPs by 8.8 per cent last fiscal, leading to healthy inventories with the TPPs. This trend is expected to sustain with a ramp-up in coal production and improved evacuation infrastructure,” according to the Crisil.
More availability along with healthy offtake by discoms and rising merchant sales are improving the average PLF for the SR pool of stressed TPPs rated by Crisil Ratings to a healthy 70 per cent this fiscal compared with 66 per cent in fiscal 2023. This is driving improvement in ARC recoveries through faster debt aggregation and quicker restructuring or refinancing.
Mohit Makhija, Senior Director, Crisil Ratings, “The trend is likely to continue. Operating performance and cash flows of stressed operational TPPs will strengthen this fiscal. Additionally, timely realisations from discoms will also improve the liquidity position. The receivables position of thermal plants rated by us has already improved to 185 days as on March 31, 2024, from 200 days a year earlier.”
With improving operating performance, the debt to earnings before interest tax depreciation and amortisation (Ebitda) ratio of stressed capacities in the CRISIL Ratings SR portfolio is expected to improve to less than 6 times this fiscal from ten times in fiscal 2023. This has not only spurred better recovery rates for the TPPs but is also paving the way for enhanced investors’ interest in stressed TPPs.
As much as 5 GW of thermal capacity with more than Rs 50,000 crore debt from secured creditors awaits resolution under the Insolvency and Bankruptcy Code. These capacities experienced stress during 2018-2019 owing to a multitude of factors such as over-leverage, implementation delays and lack of power purchase agreements (PPAs).
Despite the stress factors, these capacities offer opportunities for acquisition with potential upside as 55 per cent of the 5 GW capacity can be operationalized with fresh capital investment, while 45 per cent already are with PPAs tied up. Plus, there is scope for the addition of 3 GW to the existing capacity where requisite approvals and groundwork necessary to scale up are already in place.