Essar Power in talks with lenders to restructure Rs. 20,000-cr debt of IPPs - Essar | Creating Value

Essar Power in talks with lenders to restructure Rs. 20,000-cr debt of IPPs

Business Line

Aug 26th, 2019

Essar Power is said to be in talks to deleverage about Rs. 20,000 crore of its debt to bring it down to about one-third. For this, it plans a debt restructuring of the group’s 2,400 MW independent power producer (IPP) companies.

Essar has so far invested about Rs. 32,000 crore in its power portfolio, including Rs. 12,000 crore in equity and the rest through other modes including debt.

“Essar Power is discussing with its lenders to restructure all its existing debt. The company aims to bring down the leverage in its balance sheet from Rs. 20,000 crore currently to about Rs. 7,500 crore,” an official told BusinessLine requesting not to be named. The official did not confirm the timeline to pare the debt. The deleveraging efforts include the debt restructuring in the IPPs, which were affected by the cancellation of coal mines and the high price of imported coal.

Essar Power operates IPPs with plants in Madhya Pradesh and Gujarat, as well as captive power plants (CPP) in Gujarat and Odisha.

“The company has put together a clear programme to address the challenges faced by IPPs and is confident of overcoming them in the current year,” said another official. “The business is focussed, in the short term, on stabilising its existing portfolio.”

Notably, Essar Power arm Essar Power Hazira Ltd (EPHL), which operates a 270 MW multi-fuel power plant at Hazira in south Gujarat, is betting big on its existing power purchase agreement (PPA) with its anchor customer, Essar Steel India Ltd (ESIL). Following ESIL’s Corporate Insolvency Resolution Process (CIRP), its ownership is set to go to ArcelorMittal.

EPHL is an operational creditor of ESIL with an admitted claim of Rs. 126 crore. But the change of ownership is not likely to impact EPHL’s revenues, claimed the official.

“EPHL is one of the best assets in our power portfolio. Since its commissioning in 2016, it has delivered robust performance and has set benchmarks for other assets of similar capacity. ESIL is our anchor customer, and regardless of its ownership, the PPA terms assure us of a fixed revenue stream from the asset,” the person added.

Essar Power owns plants in India and Canada with a planned generation capacity of 5,090 MW, of which 3,830 MW is operational across six multi-fuel plants located in three States and one thermal power plant in Canada.

Renewables plan

With an estimated 7 per cent year-on-year rise in power demand in India in the coming years, Essar Power is looking to tap this opportunity by staying light on leverage and entering new PPAs to utilise its entire generation capacity.