The much-talked about and much-delayed securitization of receivables owed by India's state electricity boards (SEBs) looks like it is back on, said sources in Bombay and New Delhi.
The potential deal, which has been held up by political wrangling and the realization of just how difficult it could be, has finally been given approval by the BJP-led government.
The deal will parcel dues owed by the SEBs to state power and resource companies, such as Coal India Ltd. and the National Thermal Power Corp. The dues owed by all the boards will be transferred to a single central government-guaranteed SPV. "It has been decided that instead of the SEBs gong in for a separate SPV, a single SPV will be floated by the central power sector units which will issue separate bonds for each state," said Jayawanti Mehta, India's new minister for state power.
The bonds themselves will be exempt from tax, sources added.
Industry watchers estimated that SEBs owe around Rs100 billion ($2.2 billion) to the companies, a figure that the government says it hopes to be able to raise via the securitization.
Government officials said that the bonds would pay an interest rate of 8-10% and will be rated at triple-A thanks to the guarantee. SBI Capital Markets has been involved in the deal in the past, though it is unclear whether an official arranging mandate has been awarded.
Energy industry-watchers welcomed the news. The Confederation of India Industry, for example, said that the deal would go along way to breaking the deadlock in the sector, which has seen foreign investors wary of getting involved in an industry in such a state of uncertainty. "The plan for securitization will help SEBs clean up their balance sheets and provide the much needed funds for investment by central power and coal undertakings."
Despite such optimism, other experts in India were more skeptical. "Even with a guarantee, the history of payment is so poor and the picture of who owes what is so unclear that this will be a difficult transaction, to say the least," said a rating agency official.