IBC bitter for power projects but may be sweet for Indian economy


IBC bitter for power projects but may be sweet for Indian economy

What’s the best way to solve the stressed assets problem in the power sector? That’s a $53-billion (₹ 3.6 trillion) question. According to Bank of America Merrill Lynch, that’s the total amount of stressed debt in the power sector.

The Reserve Bank of India’s (RBI’s) unyielding stance on stressed power assets could be for the larger economic good. The central bank wants power projects that have defaulted on bank loans to undergo resolution under the insolvency process, just like their industrial counterparts.

Promoters claim their situation is different, blaming external reasons for their woes. Banks and the government seem to agree, suggesting an alternative—which was proposed some years ago too—such as an asset reconstruction company (ARC), that will take over these stressed power assets.

Insolvency may seem harsh but it can do a few things. One, it will right-size the debt and equity invested in these projects. The repricing of liabilities should lower the servicing cost, in turn improving project economics since fixed costs will decline. Read More

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