$1 billion fund in the works for stressed assets, renewable projects: Piyush Goyal

Piyush Goyal

The power ministry plans to set up two funds of $1 billion each to enable alternative financing options for stressed power assets and renewable energy projects. The two funds have been proposed under the ambit of the National Investment and Infrastructure Fund (NIIF). 

"NIIF is the fund of funds within which we will set up a sub-fund which will focus on renewable energy projects and give investment support for faster ramp up of renewable energy. It is under our active consideration and we may launch it in the near future," power minister Piyush Goyal told ET in an interview. "We are also in dialogue with certain bankers to see if we could look at a stressed power asset fund. It may take us some more months to put its framework in place."

 
Asked about the size of the funds, Goyal said, "Each of these funds could easily be of the size of $1 billion." The government set up the Rs 40,000 crore NIIF in December as an investment vehicle to fund commercially viable greenfield, brownfield and stalled projects. The power ministry's renewable energy fund will be seeded with initial capital from a few state-run companies and will be driven largely by the private sector. 

"It will be run and managed by an investment manager who will be chosen through international bidding. We would like to keep the entire fund very professionally managed - something like a Temasek or a GIC model. We have the entire framework in place. We have also got investment commitments of REC, PFC and NTPCBSE 0.76 % already lined up. This fund can be launched quickly," Goyal said. Temasek and GIC are Singapore government-owned investment firms. 

Finance Minister Arun Jaitley had sought investment from Singapore in NIIF at a meeting on Friday with visiting Deputy Prime Minister Tharman Shanmugaratnam. 

Goyal said the Centre is working on a mega investment plan for the power sector that includes extending investment support to the tune of Rs 1.1 lakh crore to states under the Deen Dayal Upadhyay Gram Jyoti Yojana and the Integrated Power Development Scheme. Additional investments worth over Rs 1 lakh crore will materialise through the implementation of four planned ultra mega power projects of 4,000 MW capacity each. 

Goyal said the recent rationalisation of rail freight rates for coal transport and the cut in prices of higher-grade coal will help to ease costly imports of the fuel. "We have also regulated coal output in the past few months, resulting in some depletion of stocks at coal mines and power stations," he said. 

The minister said he hoped distribution utilities in Haryana would start reporting profits next year and Rajasthan discoms would turn profitable in 2019 with the implementation of the Ujjwal Discom Assurance Yojana scheme. 

The minister said he hoped distribution utilities in Haryana would start reporting profits next year and Rajasthan discoms would turn profitable in 2019 with the implementation of the Ujjwal Discom Assurance Yojana scheme. 
He said controversy over electrification of Nagla Fatela village in Hathras district of Uttar Pradesh was a "blatant attempt by the state government at misleading the centre." 

Standard Chartered to sell over $1 billion of India loans

Standard Chartered starts discussions with potential investors to sell loans in the backdrop of an increase in stressed assets

Mumbai: Standard Chartered Plc. will sell over $1 billion in loans from its India book as it seeks to clean up its loan portfolio, said three people familiar with the development. The bank has started discussions with potential investors, the people added.

Bloomberg News reported on Monday morning that Standard Chartered will sell nearly $4.4 billion in loans across its Asia portfolio, including loans in India.

The UK-based bank’s decision comes against the backdrop of an increase in stressed assets. On 23 February, the bank reported a loss of $981 million from its India operations, while loan impairments, including restructured loans, across its India portfolio surged almost eightfold to $1.3 billion in 2015 from $171 million in 2014. Overall, the UK-based lender’s loan impairments surged to $4 billion in 2015 from $2.14 billion in 2014. As of June 2015, Standard Chartered had a gross non-performing assets ratio of 9.07%, according to disclosures made by the bank.

“The bank was earlier looking to sell the entire portfolio but after seeing that there isn’t much demand, it has decided to sell individual assets which includes both external commercial borrowings and local loans,” said one of the three people, adding that conversations are underway with large global funds that are looking to invest in stressed assets in India. He spoke on condition of anonymity as the talks are confidential.

The second person (who also asked not to be identified) confirmed that more than $1 billion in loans are on sale from the bank’s India portfolio.

“We said in November when we announced our strategic review that we would be aligning our risk profile to the new strategy, and confirmed then that the Group had identified a number of exposures for liquidation that exceeded the new risk tolerance levels. While we don’t comment on individual clients, we are making good progress on executing our strategy, and we will provide an update to our investors in due course,” a spokesperson for Standard Chartered India said in an e-mail.

Talks have begun with firms such as CPPIB (Canada Pension Plan Investment Board), KKR India and SSG Capital Management Ltd, said the first person.

A CPPIB spokesperson declined to comment while an SSG Capital Management spokesperson did not respond to an e-mail seeking comment. Sanjay Nayar, chief executive officer (CEO) of KKR India, declined to comment.

Standard Chartered, one of the most active foreign banks in lending to Indian firms, saw bad loans surge due to its exposure to sectors such as infrastructure where projects were significantly delayed on account of financial, regulatory, or environmental issues.

In an interview in December, Ajay Kanwal, regional CEO of Asean and South Asia at Standard Chartered, acknowledged that over-concentration was an issue in the bank’s India portfolio and that it was trying to correct that. In November, Bloomberg reported that about $5 billion in advances that Standard Chartered made to Indian borrowers had been internally classified as being at risk of default. This includes the $2.5 billion that Standard Chartered loaned to the Essar group.

According to the third person, among the loans that the bank is looking to sell are those given to the Essar group. The bank is also looking to sell some loans in the engineering, procurement and construction (EPC) segment.

An Essar spokesperson said the group would not be able to respond immediately and sought time till Tuesday.

According to the bank’s Basel III disclosures, as of June 2015, over 12% of advances were tied to the infrastructure sector, including companies in businesses such as communication, electricity generation and roads. The bank also had roughly 6% of its book tied to the metal sector which has been experiencing stress due to falling metal prices and rising imports.

“Impairments increased significantly, primarily driven by exposures to commodities and India, where corporates were impacted by continued stress on their balance sheets, coupled with a more challenging refinancing environment,” the bank said in its earnings report in February.

Satish Gupta, managing partner, Vertex Capital Partners, a distressed asset advisory firm, said selling company-specific exposure may get a better response than attempts to sell a large chunk of loans together.

“Investors would like to focus on turning around a distressed company by acquiring and aggregating debt from various lenders with an aim to restructure and recapitalize the business,” said Gupta.

He added that a portfolio approach (where a chunk of loans is sold) involves buying debt of companies from different industries, making it difficult for the buyer to focus on reviving one particular company.

Investors that buy portfolios usually value a loan on the basis of what they are likely to get if they strip and sell the assets of the lender as opposed to a turnaround. “Banks therefore get higher valuations by selling large exposures as separate individual cases rather than in portfolios,” Gupta added.

Standard Chartered is not the only bank trying to clean up its loan book. Gross bad loans across India’s 39 listed banks surged to Rs.4.38 trillion for the quarter ended 31 December from Rs.3.4 trillion at the end of September, shows data collated by Capitaline, a financial database. Bad loans increased after the Reserve Bank of India asked banks to recognize bad assets and set aside money to cover the risk of default by March 2017.

A majority of these bad loans have come from the corporate sector, where credit quality continues to remain weak.

India’s largest rating agency Crisil downgraded debt worthRs.3.8 trillion in the last financial year—the highest amount of downgrades in any year. The rating agency expects credit quality for India companies to remain under pressure in the near term.

“Debt of firms downgraded by Crisil in fiscal 2016 has risen to an all-time high of Rs.3.8 trillion, underscoring that credit quality pressures continue to mount for India Inc,” said Crisil in a 4 April report.

A CARE Ratings’ Debt Quality Index published last week showed that credit quality of debt continued to decline.

Sun Capital

Banks put up a united front on stressed assets

The message from bankers to the top management of stressed firms was clear: banks are willing to help only if the need is genuine and promoters are doing their bit.

Mumbai: On one side were the bankers—from some of India’s top banks, many state-owned.

On the other side were promoters and CXOs of companies, including some storied ones, that had borrowed money from them and were finding it difficult to pay it back.

Earlier this week, when the two met at State Bank of India’s (SBI’s) headquarters in Mumbai’s Nariman Point, the proceedings were anything but pleasant.

The message, at the end of a series of meetings, was clear: the banks would work in concert; they wanted interest payments to restart; they would help but only if the promoters and management were doing all they could to pay back the money owed by their companies; else, they would take charge.

The banks present included SBI, ICICI Bank Ltd, IDBI Bank Ltd, Punjab National Bank, Central Bank of India, Union Bank of India and Dena Bank.

The companies included Visa Steel Ltd, Uttam Galva Steels Ltd, Adhunik Metaliks Ltd, Aban Offshore Ltd, Bhushan Power & Steel Ltd and Bhushan Steel Ltd.

“We have been patient with a lot of borrowers, but if someone is trying to take advantage of that, we will not shy away from taking them to task,” said a senior banker at a state-owned bank who was present at the meetings. He sought anonymity as the meetings were confidential.

The meetings dovetailed with a massive clean-up of bank balance sheets; the Reserve Bank of India (RBI) has given them a deadline of March 2017 to complete the exercise.

The banking regulator has asked banks to provide for and reclassify stressed assets as part of an asset quality review that took place in December. Banks were asked to make at least half the required provisions in the October-December quarter and the remaining in the fourth quarter of 2015-16 (January-March).

In a report on Wednesday, JP Morgan analysts Seshadri Sen and Dhiren Shah wrote that while aggressive recognition and reclassification of stressed loans was a positive for the banking system, inadequate bank capital and low prices quoted by stressed asset buyers could play spoilsport.

Experts say joint lender meetings with borrowers could prove beneficial.

“When borrowers and all their bankers sit together, the true nature of the stress can be identified. If there are any issues that can be fixed on the bank’s end or even on the borrower’s part, it can be solved. For problems which go beyond these two, banks can always reach out to the government, which seems to be keen on reducing stress in the system,” said Vibha Batra, senior vice-president at rating company Icra Ltd.

According to the banker mentioned above, bankers had previously discussed the need for joint meetings to ensure that all lenders are on the same page.

SBI, being the lead lender in a number of instances, took the lead. The options discussed by the lenders include reclassification of loans to non-performing category, bringing in more promoter equity, working with restructuring and turnaround of firms, invoking lenders’ rights to take over collateral and finally, taking operational control of companies.

“Most borrowers came with an open mind, which made the discussions easier. But there were a few who refused to even turn up. Over the next few days, we will decide on how to move against them,” said a second banker at another state-owned bank who spoke on condition of anonymity.

Bankers warn that given the external environment, it would be too much to expect an immediate improvement in asset quality. Some cases discussed at the meetings involved iron and steel companies, which are not only highly leveraged but are also having to cope with low demand, both domestic and global.

In such cases, lenders say, the best option is to wait it out. “Whether we do it with a new promoter or old is a case-specific decision to take. But we are open to giving time to these borrowers,” said the second banker quoted above.

In some cases, lenders may choose to classify the loans as a non-performing asset (NPA), giving themselves more time to find a resolution, after due provisioning. “If it (the asset) is standard, the timeline is too stringent for any process to take place,” the second banker said.

Once the asset is classified as bad and lenders are convinced that the resolution process will show results, they could allow the company to avail of fresh loans under the current credit limits.

According to Icra’s Batra, in highly leveraged sectors such as steel which are reeling under various pressures, the least that bankers can do is to recognize the stress and provide adequately. “Once banks have adequately provided for these loans, it becomes easier for everyone to identify the issues and evaluate bank balance sheets better,” she said.

The marathon meetings with promoters form part of a larger movement by the banking system to bring problematic borrowers to task.

Apart from this, lenders are also actively trying to find investors who can buy stakes in companies where they have acquired equity control in lieu of debt.

In a 3 March advertisement on its website, SBI asked for expression of interest (EOI) from interested parties that might want to acquire management control of a company which is setting up a 2.51 million tonne per annum integrated steel plant in Bokaro, Jharkhand. The deadline for submission of the EOI is 21 March.

Gross NPAs of 39 listed banks surged to Rs.4.38 trillion in the quarter ended 31 December from Rs.3.4 trillion at the end of the September quarter, according to data collated by corporate database provider Capitaline.

In a statement last week, ratings agency Crisil Ratings said that it expects stressed assets (a sum of gross NPAs and other troubled assets) in the Indian banking system to rise to over Rs.7 trillion (or 11.3% of total loans) by March 2017, from about Rs.4 trillion (7.2% of total loans) as of March 2015.

BANKSSTRESSED ASSETSBAD LOANSSTATE BANK OF INDIANPAS