LIC Points Gun at Es­sar Co as Bond Misfires

In­surer may sue the power com­pany for fail­ing to pay in­ter­est on 11-year bonds it sold in 2013 to raise .₹ 1,000 crore

The Economic Times - - Companies - Shilpy.Sinha@ times­group.com 48 CRORE

Mum­bai: Life In­surance Cor­po­ra­tion of In­dia may sue the Ruia-run Es­sar Power for miss­ing in­ter­est pay­ments on 11year bonds it sold in 2013 to raise .₹ 1,000 crore, said two peo­ple aware of the mat­ter. But the com­pany said it would soon be able to catch up on pay­ments.

Es­sar Power has not paid in­ter­est in the past six months on the deben­tures. The coun­try’s largest in­surer may move court to re­cover its dues by forc­ing Es­sar Power to sell some as­sets, said the peo­ple cited above.

How­ever, im­proved fuel sup­ply has al­lowed the util­ity to restart power plants, putting it on the path to re­cov­ery, it said in an emailed re­lease. Apart from that, some of its own dues are li­able to be paid soon.

“More than .₹ 1,000 crore in re­ceiv­ables from GUVNL (Gu­jarat Urja Vikas Nigam Ltd) is stuck in court cases where lower courts have ruled in our favour,” it said. “We ex­pect mat­ters to be fi­nalised shortly. Re­cov­ery from these cases will be used to pay debt of the hold­ing com­pany, Es­sar Power Ltd, in­clud­ing that owed to LIC.” LIC had bought the bonds that of­fered an at­trac­tive coupon rate of 12.5%, when yield on highly rated pa­per was com­ing off.

Es­sar Power is among in­fra­struc­ture com­pa­nies that haven’t been able to keep up with pay­ments as projects have got stalled over de­lays in ap­provals and oth-

When Bond Turns Sour LIC bought Es­sar Power bonds in 2013 at coupon 200 bps above sim­i­lar rated pa­pers Es­sar Power has failed to pay LIC since Oc­to­ber er rea­sons. While some power units were moth­balled by com­pa­nies for want of fuel, oth­ers bor­rowed ex­ces­sively, lead­ing to de­faults. Banks are now be­ing forced by the Re­serve Bank of In­dia to clean up their books and are in turn forc­ing Lanco, Jaypee Group and oth­ers to sell as­sets to get their money back.

The drop in fuel prices has been good news for Es­sar Power.

“Most of these is­sues are get­ting re­solved since gas prices have fallen sharply, help­ing us to restart our gas-based projects,’’ the com­pany said. “Our im­ported coal-based project has im­proved per­for­mance sig­nif­i­cantly be­cause of bet­ter op­er­a­tional ef­fi­ciency and fall­ing coal prices. We are also restart­ing our do­mes­tic coal-based plant shortly be­cause of in­creased avail­abil­ity of do­mes­tic coal. Over­all, the power sce­nario is im­prov­ing with reg­u­la­tory cer­tainty now in place.”

This marks a turn­around from its pre­vi­ous straits. “Its op­er­a­tional gas-based projects were not op­er­at­ing be­cause of high gas prices and the power sec­tor in general was stressed,” the com­pany said. “All these fac­tors led to a de­lay in ser­vic­ing deben­ture hold­ers.”

Es­sar Power has not paid in­ter­est in the past 6 months on the deben­tures

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