Adani Power Offers Rs 2,600 crore to Acquire Essar Power under IBC

Adani Power Offers Rs 2,600 crore to Acquire Essar Power under IBC

Adani Power has made an offer of Rs 2,600 crore to acquire Essar Power MP under the Insolvency and Bankruptcy Code (Code) rules. The bid of Adani Power sets a comeback of bankruptcy resolutions, after expiry of 25 March deadline for the moratorium on filings of insolvency cases.

The offer of Adani competes with another offer of the Vedanta group, the offer of the latter is said to be priced much lower. A lender group is negotiating with Adani to improvise with the terms of the deal. The group wants at least Rs 400 crore more. Adani's offer would require the lenders to take a 56 percent on the principal amount alone and also forego the entire interest.

The background of the case is that an application was filed by ICICI Bank to initiate insolvency proceedings against Essar Power several months prior to announcing a moratorium on insolvency cases in 2020. It had approached the National Company Law Tribunal (NCLT) and claimed that Essar Power had defaulted on a Rs 1,300-crore loan.

The Tribunal appointed Jet Airways administrator Ashish Chhawchharia as the company's resolution professional and proceeded with the company's insolvency proceedings. Several creditors including public sector banks like Punjab National Bank had loaned Rs 6,000 crore to the Essar group company and the said amount has amounted to Rs 12,000 crore (including interest).

Essar Power was once a major supplier of power to Essar Steel and amongst the largest thermal power companies in India. It owns and operates two power plants generating a combined 1,200 megawatts. The company's plants are located in Singrauli District, Madhya Pradesh.

Almost 70-80% of the power generated is contracted for sale through power purchase agreements with state-owned distribution companies. Its contracts with Essar Steel were terminated once Arcelor Mittal took over that company.

Essar Power went into financial distress due to the de-allocation of a coal block that was linked to the power plants and on delays in various clearances. The Essar group had invested over Rs 3000 crore as equity in the company.

The company's promoters, the Ruia family, made at least two attempts to settle the loans with the banks however their attempts were rejected. The first attempt was of Rs 2,800 crore loan restructuring package with the banks. They also offered a one-time settlement of approx. Rs 3,500 crore.

Essar Spokesperson gave a statement that "We are in the final stages of completing our deleveraging program and in the next two quarters we intend to repay the balance Rs 10,000 crore which is largely in the power portfolio. With the Rs 140,000 crore deleveraging exercise behind us and now having largely exited the coal-based power portfolio in line with our new ESG strategy, we will concentrate on post-carbon energy space."

Several thermal plants are undergoing bankruptcy proceedings currently that include- KSK Mahanadi Power, Lanco Amarkantak Power, and Avantha Jhabua Power. This was creating a pool of assets for bidders to choose from and was driving down prices.