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
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