Smaller power and steel companies, whose profitability was largely driven by the now cancelled coal blocks, have debt of around $10 billion and would face bigger challenges, while servicing these debts, says Nomura
The Supreme Court on Wednesday cancelled all but four coal block allocations and
also imposed a penalty of Rs295 per tonne on any coal extracted since allocation of these mines. While large power and steel companies will not face much issues while servicing their debts, it is the smaller one who would face significant challenges, says Nomura in a research note.
"Some of the smaller steel and power companies are now facing significant debt
servicing challenges after the cancellations as their profitability was largely driven by these block allocations. We estimate $10 billion of system lending to these companies," the report said.
According to Nomura, large power and steel companies, which have coal blocks that were cancelled, cumulative have a debt of about Rs4 lakh crore. It said, "Despite the blocks being cancelled, most large power and steel companies will not face significant debt servicing challenges, in our view, though their equity returns are likely to impacted due to cancellations and penalties imposed."
Talking about exposure of banks and non-banking finance companies (NBFCs), Nomura said exposure of Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) is highest to the smaller power companies linked to these cancelled coal blocks.
In state-run lenders, Punjab National Bank, Union Bank of India, IDBI, UCO Bank and United Bank of India has highest exposure to steel and power companies affected by the Supreme Court decision. "PNB and Union Bank of India has the highest exposure to these assets as a percentage of their net worth at 10-15% of FY14 net-worth (NW) compared with 6%-7% of NW for State Bank of India (SBI), Bank of Baroda (BOB) and Bank of India (BOI)," Nomura said.
Private banks like ICICI Bank and Axis Bank do not have exposure to affected steelmakers but these lenders have exposure of around 4-5% of NW to power producers. According to Nomura, exposure of other private banks to these assets is relatively negligible.
"Although the cancellation of coal blocks weakens the business models of some of the names mentioned and will likely lead to some credit or restructuring charges, we think the impact on our top picks Axis Bank and ICICI Bank is manageable," the report added.
The union government is preparing a roadmap for identifying PSUs not capable of revival and for closing them down after giving benefit of VRS to its employees
The Indian government has started the process to revive five out of 11 sick public sector units (PSUs) and would form a joint venture of Maharatna PSUs to help revive the sick units, says Anant Geete, union minister for Heavy Industries and Public Enterprises.
Speaking about terminally ill PSUs, the minister said, "It would be better to make one-time settlement and eliminate even higher recurring expenditure."
Geete said, his ministry is preparing roadmap for identifying PSUs not capable of revival and for closing them down after giving benefit of voluntary retirement scheme (VRS) to its employees. "We are making a proposal for one-time settlement costing around Rs1,000 crore for employees of six PSUs that are not capable of revival," the minister added.
The functioning of the Board for Reconstruction of Public Sector Enterprises (BRPSE) has been reviewed, Geete said, adding that the government want to streamline multiple mechanisms for revival of sick central public sector enterprises (CPSEs) and have identified the action points in this regard.
The minister also said that there is a proposal to establish Ultra Mega Green Solar Power Park with an ultimate capacity of 4000 MW in Rajasthan.
The CCEA deferred a decision on revising natural gas prices by 45 days to 15th November due to elections, says Dharmendra Pradhan
The Indian government deferred an increase in natural gas price for a third time in view of next month’s Assembly elections in Maharashtra and Haryana.
The Cabinet Committee on Economic Affairs (CCEA) on Wednesday deferred a decision on revising natural gas prices by 45 days to 15th November.
Oil Minister Dharmendra Pradhan said, “It was done due to elections.”
He, however, did not say if the decision was postponed because of model code of conduct being in place or to avoid the fallout of the price increase on power tariff and CNG rates.
Every dollar increase in gas price will lead to a Rs1,370 per tonne rise in urea production cost and a 45 paise per unit increase in electricity tariff (for just the 7% of the nation’s power generation capacity based on gas).
Also, there would be a minimum Rs2.81 per kg increase in CNG price and a Rs1.89 per standard cubic meter hike in piped cooking gas.
Assembly elections to the 288-member Maharashtra Assembly and 90-seat Haryana Assembly will be held on 15th October and the counting will take place on 19th October.
Apart from these states, bypolls will be conducted on the same day for five Assembly seats in five states —— Arunachal Pradesh, Manipur, Nagaland, Uttar Pradesh and Gujarat.
By-elections for two Parliamentary constituencies in Maharashtra’s Beed and Odisha’s Kandhamal will also be held on 15th October.
The UPA Government had in June last year approved a price formula suggested by a panel headed by C Rangarajan and re-confirmed it in December 2013 with certain conditions for Reliance Industries’ eastern offshore KG-D6 block.
The formula was to be implemented from 1 April 2014 but before a rate could be notified, general elections were announced and the Election Commission asked the then government to defer it till the completion of polls.
On 25th June, the new BJP-led Government deferred it for a further three months as it found doubling of rates as per the approved formula unpalatable.
Earlier, Pradhan had told Parliament that a new gas price will be announced by September-end.