Stressed power assets hope to find a Liberty House at NCLT
An insolvency process in the steel sector marked the India entry of UK-based Liberty House, a name largely unknown in the country. It managed to beat established firms such as the Tatas and the JSW Steel. With more than a dozen stressed power assets now piling up at insolvency courts, could the sector see the emergence of another Liberty?
Outside of the National Company Law Appellate Tribunal (NCLAT), lenders saw an interest from firms such as Adani Power, Tata Power’s joint venture Resurgent Power, and JSW Energy for takeover of stressed firms. This, most experts say, is unlikely to change in a big way. “Global power utilities like the big names from the US, Japan and Malaysia (who are yet to make an entry), may take longer to decide on buying power assets, as they are long-term players, 25 per cent returns may make the cut for them,” said a investment banker from a private firm. He said returns of more than 20 per cent, the same at which the current assets seem to be going, might make it interesting for funds, specifically the stressed asset funds.
Some funds have made inquiries for assets that are likely to go to NCLT, but none of these is from global power utilities.
“Global power producers and utilities from West Asia and otherprivate equity funds may have a fundamental interest in such assets, but the interest will translate into a bid only if they see what lies ahead in terms of business potential for these assets post resolution,” said a partner with one of the Big Four in the country. Investment bankers point out the key difference between the steel assets and those in the power sector is the demand outlook and the regulatory nature .“Power is regulated, and steel is open with demand looking up, which made it easy for a Liberty House to step in,” said the banker quoted earlier.
Liberty House was a bidder for ABG Shipyard and Bhushan Power and Steel. It won two assets — Amtek Auto and Adhunik Metaliks. According to sources close to Liberty House, the firm is looking at power assets, too. However, not everyone is confident there would be new buyers.
The valuations quoted so far for assets such as GMR Chhattisgarh Energy, Jaypee Group's Prayagraj Power Generation, and KSK Mahanadi may give some hope for new buyers to step in.
To be able to find buyers of a diverse profile, the agencies involved will need to find a longterm solution to fuel security and offtake agreement issues for these plants. “The larger question most of the funds and utilities will have is what is the way forward after the acquisition. For these assets to find buyers there has to be assurance or a defined roadmap for power offtake, which will help the potential acquirers to get returns once the resolution process is complete,” said Rahul Prithiani, director at CRISIL Research.
Analysts also point out that at current valuations, these stressed power assets are a good de-risk exercise for the existing firms that set up the plants at a cost of ~60-70 million per Mw. Industrial conglomerates, including metal firms in India, are also expected to look at these assets to secure captive power assets, where feasible.
The valuations quoted so far for assets such as GMR Chhattisgarh Energy, Jaypee Prayagraj, and KSK Mahanadi may give some hope for new buyers to step in