SBI to refinance Adani’s loans through 5/25

State Bank of India (SBI) has agreed to refinance R5,000 crore of loans to Adani Power subsidiaries — Adani Power Maharashtra (APML) and Adani Power Rajasthan (APRL) — using the 5/25 scheme, sources aware of the development told FE. IDBI Bank is also expected to join the consortium to refinance a part of the debt.

“SBI has recently cleared the proposal with a 15-month moratorium on interest payments,” sources told FE.

The proposal envisages refinancing R15,000 crore of loans by a consortium of bankers, of which SBI alone, it is understood, will refinance close to R5,000 crore — R2,900 to APML and R2,100 to APRL —at an interest rate of slightly over 12%.

SBI is understood to have shelved a proposal to lend $1 billion to the Adani Group for the development of Carmichael coal mine in Australia. “We have informally conveyed to the company that SBI would abstain from the proposal,” a banker, who did not wish to be quoted, said.

SBI is understood to have shelved a proposal to lend $1 billion to the Adani Group for the development of Carmichael coal mine in Australia. “We have informally conveyed to the company that SBI would abstain from the proposal,” a banker, who did not wish to be quoted, said.

Since the companies reported losses in FY14 and their cash flows are strained in the absence of a compensatory tariff having been sanctioned, refinancing the loans via the 5/25 route will help keep the asset standard,” the sources explained. APML reported a net loss of Rs 646 crore in FY14 while APRL posted a net loss of Rs 285 crore.

A refinancing works better for borrowers because they do not need to bring in fresh equity as they would need a corporate debt restructuring (CDR). However, analysts at Crisil recently cautioned that such refinancing would mask the true picture of asset quality and warned that about 15% of these assets could slip into the NPA territory over the longer term. They estimate Rs 80,000 crore of assets could be refinanced under the scheme this year.

“We believe that the 5/25 scheme will replace the restructuring tool earlier available to banks, especially for large loans. Restructured assets were visible in the reported numbers of banks. But now, the assets that will be part of the 5/25 scheme, they will not necessarily be reported by banks and could get masked in the NPAs,” Crisil observed.

According to documents available with the registrar of companies, the combined debt of the Adani Group subsidiaries stood at Rs 19,694 crore in FY14, up 27.5% over the previous year. Since December 2014, the RBI has allowed banks to refinance existing infrastructure projects under the 5/25 model, provided the projects have commenced commercial operations. The central bank said in a notification: “Banks may fix a fresh loan amortisation schedule for the existing project loans once during the lifetime of the project, after the date of commencement of commercial operations without this being treated as restructuring.”

Till April, banks were resorting to restructuring stressed loans via CDR since the RBI allowed such assets to be categorised as ‘restructured standard’, which meant banks needed to make a provision of just 5% and not a minimum of 15% as is required for an NPA. However, that forbearance has been lifted from April 1.

Adani Power has committed to supplying power under long-term power purchase agreements to distribution companies Uttar Haryana Bijli Vidyut Nigam, Dakshin Haryana Bijli Vidyut Nigam (Haryana discoms) and Gujarat Urja Vikas Nigam. The company, whose plants are being fuelled by imported coal from Indonesia, had approached the Central Electricity Regulatory Commission (CERC) for a tariff hike to compensate it for the rise in the cost of coal. While the CERC has allowed compensatory tariff, the Haryana and Gujarat discoms have approached the Appellate Tribunal for Electricity against the CERC order.