Power Finance Corporation (PFC) has no NPAs and has not added any NPAs during its December 2018-ending quarter, while one loan asset – GVK Ratle Project of Rs 811 crores – is expected to be upgraded to ‘Standard Asset’ from non-performing category during Q4 2018-19 with provision reversal of approximately 600 crores, according to Rajeev Sharma, CMD PFC.
“About 100% principal recovery (around Rs 1,400 crore) has been offered by three borrowers – Dans Energy, Shiga Energy and Essar Transmission – where currently 16% provisioning is available for these projects and, if settled, will lead to reversal of this provision also. For Essar Mahan, provision of 53% already made for this project is sufficient. This is a 2x600MW coal-based commissioned project and we received an offer from Arcelor Mittal,” Sharma said at a press conference to highlight the Indian Government’s view on Power Finance Corporation’s acquisition of REC.
He said the Indian Government – while emphasizing consolidation of CPSEs through mergers and acquisitions — had, on December 6, 2018, given ‘in principle’ approval for strategic sale of its shareholding in REC Ltd to PFC along with transfer of management control. “This REC acquisition is an inorganic growth opportunity that will provide a competitive edge to PFC in future, while creating a common platform for power sector financing alongside leveraging REC’s expertise in the generation, transmission and distribution space, geographical reach and also ensuring a synchronized approach for resolution of stressed assets,” he said.
Sharma said PFC has received all regulatory approvals for this deal from SEBI, Competition Commission of India and RBI, though the transaction price has not been finalized and price determination is underway. “DIPAM has already appointed a valuer for REC Ltd and the pricing will be mutually decided by Government of India and PFC with the deal envisaged to close by March 31, 2019,” he said, adding that PFC is not considering extending ‘Open Offer’ to the minority shareholders, but is planning funding through debt from market and/or payments received on loan assets from borrowers including interest.
“The PFC-REC acquisition deal will help to achieve integration across the power chain, obtain better synergies, and create economies of scale and enhanced capability to support energy access and energy efficiency by improved capability to finance power sector,” he said while noting that with the Indian Government’s continuing focus in the renewable space, PFC is all set to take advantage of this by increasing its footprint in the solar and wind space by leaps and bounds.
He said that despite challenges witnessed by the power sector, PFC’s Q3Fy2018-19 witnessed a 53% jump in profits to Rs 2076 crores from Rs 1,355 crores in the same period last year, while its Return on Equity increased by around 8% to 20.97% from Q3 2017-18 to place its ROE among the top quartile level of the industry. PFC continued releasing disbursements with 34% increase to Rs 14,600 crore in Q3Fy 2018-19 and loan assets growing by 14%, he said while noting that PFC had made sufficient provisioning of 52% against its stressed assets that – it believes – is adequate to protect its future profits.
To a question about the Southeast Transmission project in U.P. being developed by Isolux, a Spanish company, Sharma said “We are going to the NCLT to resolve that issue.” (This is a project that is 70% commissioned with the U.P. Transmission Corporation using the line for last two years and for which PFC had been in advanced stage of negotiation with U.P. Transmission Corporation for the takeover of this project, PFC had declared on May 31, 2018.)
To a question about fund borrowing options, he said “We are looking at getting the cheapest debt at competitive rates. I have many windows and don’t need to go to the Bond market. That’s why my cost of funds has come down.”
Dr Arun Kumar Verma, Joint Secretary, Union Ministry of Power, while replying to media questions, said that post-acquisition, REC will remain as CPSC as it has domination over the power transmission/distribution sector. However, while PFC is a government company, the Government is not supporting it in terms of capital due to its own capability in this regard, he said.
