Bidders set up close fight for SKS Power; financial creditors could make a full recovery

Bids to take over the debt-laden 600-MW SKS Power Generation plant are in a tight range, setting the stage for a close contest between the bidders that include two of the country's biggest conglomerates - the Adani Group and Reliance Industries. Initial resolution plans submitted by the seven bidders are in the range of ₹1,400 crore-₹1,600 crore, indicating a maximum recovery at this stage itself at 85% for financial creditors for their ₹1,890-crore dues. These bids are on basis of net present value (NPV), which discounts future cash flows to factor in the time value of money.

"All bidders that had submitted bids early this month are very close, which means a recovery of over 75% is almost guaranteed. To break the deadlock, banks will push the bidders to offer more particularly with more cash upfront, which is likely to take recovery closer to 100%," said a person familiar with the process.

To be sure, some bidders have offered a mix of cash upfront and deferred payments with non-convertible debentures (NCDs) issued by parent companies payable in five-eight years. Plans of individual bidders could not be ascertained. Individual bidders could not be immediately contacted.

"Financial creditors will ask for more than the initial bids in the second round of negotiations. Looking at strong demand for the plant it is likely that financial creditors could get a full recovery and can also bargain for full or part of the resolution costs," said the person cited above. Rules say that any amount recovered above the dues of financial creditors has to go to operational creditors after adjusting for the costs. In this case, operational creditors have dues of more than ₹500 crore.

The corporate insolvency process for SKS was initiated in April 2022. The company owes ₹1,890 crore to two banks - Bank of Baroda and State Bank of India (SBI).

Its 600-MW Chhattisgarh-based plant had stopped production after Hong Kong-listed owner Agritrade Resources failed to keep it running due to financial difficulties of its own. Agritrade Resources had bought plant in 2019 in a one-time settlement with lenders led by SBI. The plant has 25 years of fuel agreement with South Eastern Coalfields, a Coal India unit, with a railway line transporting coal to the plant, making it a rare one available for sale.

"At this stage Reliance, Adani, Torrent Power and NTPC are top contenders. But Jindal Power, which has a power plant of its own within 50 kms, and Sarda Energy & Minerals, which has some mines even closer, also cannot be ruled out. Even for Adani it's a great buy because it owns a power plant right next door. The seventh contender Singapore-based Vantage Point Asset Management also has deep pockets. With all the seven bidders in the game it's going to be a tight contest," said a second person aware of the process. Process advisor BoB Capital Markets and resolution professional Ashish Rathi did not reply to an email seeking comment.

The plant is currently being run by NTPC following a government directive aimed at overcoming power shortages. "The strong interest is because getting this plant with all approvals in place is much cheaper compared to building a new one. At ₹2,000 crore, it costs less than ₹3.5 crore per MW, when the cost of building a plant today is upward of ₹9 per MW," said the first person cited above. Creditors will likely start negotiations with individual bidders next week.