IL& FS’ ‘good’ power asset may turn ‘bad’

Mumbai: A power plant owned and run by the troubled IL&FS is facing the threat of turning from a ‘good’ asset into ‘bad’ as a court permitted freeze on repayments prevents the lenders from using the funds generated by the firm, discouraging banks from giving more working capital to the unit.

With no access to funds even from good assets that are generating cash flows, the current strategy of the IL&FS management to put in place a moratorium on funds deposited by the operating companies runs the risk of even cash generators turning into stressed assets.

IL&FS has written to its trusteeship to stop further withdrawals from its escrow accounts to service debt.


“Discussions are on with the lenders with regard to loan servicing and other debt-related matters,” said a company executive on the condition of anonymity.


After the NCLAT ruled in favour of a moratorium on the repayment of loans, IL&FS group companies and special purpose vehicles (SPV) are opting to not pay the lenders despite some operating units generating cash flows.

The court allowed a moratorium until further orders. The matter will come up for hearing on January 28. The view taken by the company is that the moratorium is for the entire debt of Rs 91,000 crore.

To be sure, IL&FS Tamil Nadu Power Plant could default on its payment commitments as the state government has delayed the settlement of Rs 650 crore because of the emergency arrangements toward relief and rehabilitation effort in the aftermath of the Gaja cyclone, said a source.

“The delay in settlement of dues was because of emergency arrangements toward relief and rehabilitation effort in the aftermath of Gaja cyclone,” said the source. “The company is self-sufficient.”

IL&FS declined to comment.

IL&FS Tamil Nadu Power Company (ITPCL) is incorporated by IL&FS Group under the energy platform for implementation of the thermal power project at Cuddalore in Tamil Nadu.

Of the cumulative capacity, phase I of the 1,200 MW project has commenced commercial operations. The second phase will have 3 x 660 MW and the final phase will have 1 x 660 MW with necessary approvals, according to the company’s website.

Another executive said that dues to vendors and service providers at the Tamil Nadu plant amount to Rs 8 crore. The plant has won a 500 MW power supply deal with the TN government in an auction bid on the Power Exchange, and this has to be realised by the end of January.

“IL&FS group companies are not paying lenders even if the cash flow of the subsidiary is good,” said a source close to the development. “There was a default by some subsidiaries that have refrained from paying despite the cash flow being good.” The legal view given to the board is that the companies should take directions from the court on structuring the payments, taking a holistic approach on the debt repayment.

Lenders, meanwhile, have expressed their concerns about making extra provisions by the last quarter on loans classified as nonperforming due to their IL&FS exposure.

Rating companies have begun downgrading SPVs of IL&FS due to risks of default after the reversal in the management’s earlier stance of maintaining structured payments. Last week, Crisil downgraded Jharkhand Road Projects Implementation Company from AA to BB.