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Brothers In High Tension Debt Bailout Bonhomie
The sale of the power project to JSW Energy will bring down JSPL's debt by about 10%, which may not be enough to move the company back to profitability
Photo Credit : Reuters
JSPL's sale of its 1,000 megawatt project to JSW Energy highlights the mounting distress in the Indian steel and power sectors, which are both struggling with high debt levels and weak demand. JSPL also declared its full year results on Wednesday, and it reported a loss of Rs 1,999 crore for the year ended March 2016, up from last year's loss of Rs 1,455 crore. The company is struggling under a massive debt of Rs 40,000 crore, and paid out Rs 3,280 crore just in finance costs during FY16. The sale of the power project to JSW Energy will bring down JSPL's debt by about 10 per cent, which may not be enough to move the company back to profitability.
JSPL isn't the only power company selling assets to get out of the debt-trap. In September 2015, Jaiprakash Power Ventures sold off its hydropower business, also to JSW Energy, at an enterprise value of Rs 9,700 crore. Jaiprakash Power too is struggling under debt of over Rs 30,000 crore.
Other power sector firms such as GMR, GVK and Lanco are also struggling under a heavy debt burden. GMR Infrastructure and Lanco, both have debt of over Rs 40,000 crore while GVK's balance sheet has debts of over Rs 20,000 crore. All the three companies incurred a loss during FY15 and during the first three quarters of FY16. These companies have also been trying to bring down debt through asset sales. In March this year, GMR sold off its stake in a highway project for Rs 1,078 crore. GVK recently sold off a 33 per cent stake in Bangalore airport for Rs 2,149 crore while Lanco is currently looking for a strategic investor for all or part of its 8,000 megawatt power portfolio.
Just these five companies - JSPL, Jaiprakash, GMR, GVK and Lanco - have a combined debt of over Rs 150,000 crore. The power sector presents a potential minefield for India's banking sector, which is already grappling with bad loans - or non-performing assets of over Rs 4 lakh crore. In case of the power sector, there is an across the board problem - over 20 per cent of all electricity generated in India is lost/stolen and a little more than 20 per cent is sold to farmers at a fraction of its actual price. As a result, state owned power distribution companies are in financial trouble and cannot purchase power from generation companies - leaving idle capacity and losses for companies which have created these capacities. So far, the Central Government has done a credible job of dealing with the coal shortage over the past two years, whether it can deal with the mounting debts of power sector remains to be seen.
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