CRISIL says Rs 90,000-cr package is good but time is of essence. Wait, what?

• The risk would be higher for ~9.4 GW of capacities (with debt of ~Rs 49,000 crore) because their liquidity cushion is so low, said Crisil

• The Rs 90,000 crore liquidity injection to discoms, therefore, comes at an opportune time for these generation companies, it added

New Delhi: The government's move to provide Rs 90,000 crore loans to state power distribution companies (discoms) would help clear a chunk of their obligations to power generation companies, said CRISIL in a report on Wednesday. The loans are to be provided through the Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) against receivables of discoms backed by state government guarantees. It will come at a time when ~53 GW coal capacities of independent power producers — excluding 22 GW under debt resolution — are facing the ramifications of the liquidity squeeze at discoms.
 
There has been a big fall in electricity demand from high-tariff paying industrial and commercial consumers, and collection efficiencies of discoms have also dropped because of the lockdown. This has raised the risk of discoms either curtailing electricity purchases, or delaying payments based on high-cost power purchase agreements.

Risk higher for ~9.4 GW of capacities: Crisil
 
Manish Gupta, Senior Director, CRISIL Ratings, said, "The bulk of these 53 GW capacities can withstand cash flow pressures owing to their liquidity buffer and/or parentage. But the risk would be higher for ~9.4 GW of capacities (with debt of ~Rs 49,000 crore) because their liquidity cushion is so low, an additional delay of even one month can cause them to default on financial obligations."
 
The at-risk capacities have either inefficient power purchase contract structures (payments are linked to offtake for 5 GW capacities) or high generation cost (for 4.4 GW projects), making them disproportionately susceptible to payment delays by discoms.
 
While most of these capacities have availed of the 3-month moratorium announced by the Reserve Bank of India till May 31, sustained disruption in cash flows will make them vulnerable versus obligations in June (accrued interest and regular principal repayments). Also, most of these capacities may not have adequate letter of credit limits to defer fuel payments by a quarter.
 
The Rs 90,000 crore liquidity injection to discoms, therefore, comes at an opportune time for these generation companies, and can potentially alleviate the interim risks.

Rs 90,000 crore package: Quick availability of funds is critical
 
Ankit Hakhu, Director, CRISIL Ratings, said, "How quickly the money is injected will be critical as these capacities have limited ability to withstand delays. This includes timely formulation of the scheme and approvals of guarantees by the state governments. Moreover, as the loans would be made available to the discoms, the extent of liquidity pass-through to generating companies will be crucial to reduce vulnerability."
 
CRISIL's credit outlook on generating companies will remain sensitive to these developments.