Sebi Takes CARE to Ques­tion Crisil Deal

Seeks ex­pla­na­tion from Crisil about its in­tent be­hind buy­ing 8.9% in ri­val CARE

The Economic Times - - Front Page - With 9.79% largest

New Delhi | Mum­bai: The Se­cu­ri­ties and Ex­change Board of In­dia is ex­am­in­ing Crisil’s June 29 pur­chase of an 8.9% stake in ri­val credit rat­ing firm CARE Rat­ings after the lat­ter com­plained the trans­ac­tion was an at­tempt at a po­ten­tial hos­tile takeover, said peo­ple with knowl­edge of the mat­ter.

Sebi has sought clarifications from Crisil about its in­tent and asked it to ex­plain whether the pur­chase rep­re­sented a fi­nan­cial in­vest­ment or had wider strate­gic im­pli­ca­tions such as a takeover. The trans­ac­tion re­quires Sebi’s ap­proval as it per­tains to the reg­u­la­tion of mar­ket in­ter­me­di­aries di­rectly un­der its purview. “The in­vest­ment was made pur­suant to a pub­lic bid process con­ducted by Ca­nara Bank and is in com­pli­ance with all ap­pli­ca­ble laws and reg­u­la­tions,” Crisil said in an emailed re­ply to ET. “This is an in­vest­ment. We are op­ti­mistic about the long-term growth prospects of the credit rat­ing sec­tor.”

A Sebi of­fi­cial said the reg­u­la­tor was ex­am­in­ing the trans­ac­tion. Sebi Chair­man

“At present, there is a need for play­ers in the rat­ing space,” the per­son said. “It is not some sec­tor which needs con­sol­i­da­tion… CARE has made its rep­re­sen­ta­tion to Sebi rais­ing con­cerns over the ac­qui­si­tion. We will now ex­am­ine Crisil’s re­sponse.” CARE Rat­ings CEO Ra­jesh Mokashi de­clined to com­ment over the phone. The com­pany didn’t re­spond to emailed queries.

At stake is the am­bi­tious tar­get to add 100 Gi­gawatts of so­lar en­ergy ca­pac­ity by 2022, which is re­quired to ful­fil In­dia’s com­mit­ments in the Paris Cli­mate Ac­cord, the as­so­ci­a­tion said.

The prob­lem arose fol­low­ing re­cent auc­tions for both wind and so­lar en­ergy, which saw tar­iffs drop sharply, fall­ing to Rs 3.46 per kwH in the case of wind in an auc­tion con­ducted in Fe­bru­ary and Rs 2.44 per kwH for so­lar in an auc­tion in May.

Since then dis­coms in Gu­jarat, Andhra Pradesh, Ut­tar Pradesh, Tamil Nadu, Kar­nataka and Jhark­hand have been try­ing to rene­go­ti­ate ear­lier power pur­chase agree­ments (PPAs) they had signed – or were about to sign – seek­ing lower tar­iffs, while de­vel­op­ers have been re­sist­ing.

“After the re­cent auc­tion for wind power projects, some states have started rene­go­ti­at­ing for down­ward re­vi­sion of tar­iffs,” VG Kan­nan, chief ex­ec­u­tive at In­dian Banks As­so­ci­a­tion, said in the note to the gov­ern­ment. He ex­pressed con­cern at re­ports that state dis­coms were try­ing to re­nege on their com­mit­ments to so­lar projects awarded in the past at a higher tar­iff.

“Such ac­tion of states could re­sult in a larger prob­lem as so­lar projects im­ple­mented in the past at higher cost are not vi­able at lower tar­iffs be­ing dis­cov­ered in re­cent auc­tions,” Kan­nan said in the note.

“This is a wor­ry­ing trend and would have se­ri­ous neg­a­tive con­se­quences for sev­eral op­er­a­tional and vi­able projects as well as the sec­tor at large. The loans taken by de­vel­op­ers to set up ca­pac­ity may be­come non-performing after can­cel­la­tion/rene­go­ti­a­tion of PPAs, adding to the bur­den on banks.”

The let­ter also re­ferred to the Ut­tar Pradesh gov­ern­ment’s de­ci­sion in May to can­cel PPA for set­ting up 3,800 MW of ther­mal power projects in the state. As­so­ci­a­tion of Power Pro­duc­ers di­rec­tor gen­eral Ashok Khu­rana said dis­coms had no le­gal ground to walk out of a PPA. “Nowhere in the PPA is there a pro­vi­sion for ter­mi­na­tion on the ground of high/low tar­iff ap­proved by the reg­u­la­tor,” he told ET.

The In­dian Banks As­so­ci­a­tion said can­cel­la­tion of PPAs would lead to a spate of court cases. “Can­cel­la­tion/rene­go­ti­a­tion of PPAs is con­trary to the ba­sic premise of long-term loans ex­tended on the strength and se­cu­rity of the PPA at a fixed price,” it added. “Banks have as­sessed the vi­a­bil­ity of a pro­ject at the price con­tracted in the PPA. If state gov­ern­ments back­track on their PPA com­mit­ments, the re­lated projects would be­come un­vi­able and the un­der­ly­ing loans may not be ser­viced, ren­der­ing use­ful pro­duc­tive as­sets wasted.”

The let­ter urges the min­istry of power to in­ter­vene with state gov­ern­ments and state dis­coms and get them to “hon­our their com­mit­ments” and stop try­ing to rene­go­ti­ate signed PPAs.

Mo­hit Bhalla & Reena Zachariah

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