India’s civil aviation policy replaces 5/20 condition with 0/20 rule

India’s Cabinet of Ministers gave its approval for partial abolition of the 5/20 rule, which will enable new carriers like Vistara and Air Asia to start international operations sooner.

The new Civil Aviation Policy released by the ministry on 15 June 2016 decided to overturn a requirement that mandated airlines to have five years of domestic operations to be eligible to fly overseas.
However, an airline would have to allocate 20 aircrafts or 20% of its total fleet, whichever is higher, to domestic operations in India if they wished to fly overseas. This effectively means a carrier must have a minimum of 20 aircrafts in its domestic fleet.

RBI’s new debt restructuring scheme may not be a game changer

According to analysts and bankers surveyed, India’s Reserve Bank of India’s (RBI) new measure to tackle the pile of mounting bad loans in the banking system was not expected to be a game changer.

New norms pertaining to the Scheme for Sustainable Structuring of Stressed Assets do address some of the issues faced in earlier strategic debt restructuring (SDR) programs, where banks were unable to sell off the assets after taking management control of a company and converting its debt into equity.

The new scheme raised doubts on the practice of banks giving a new loan to repay an old one, also known as evergreening of loans.

According to credit rating agency  ICRA, the move might help the reduce the reported level of gross non-performing loans by 30-100 basis points from the current 7.7% as on 31 March 2016, after a lag of one year (following satisfactory performance of the sustainable debt portion).

The process would commence with loans worth INR 750,000-800,000m ($11 – 12bn) would be taken up for restructuring under the new norms.

The challenge pointed out by bankers is that this scheme is only for projects that are operational. So, several projects in the power and the infrastructure space would not qualify.

Under the new scheme, banks will have to divide the existing debt of a company into ‘sustainable’ (the share which can be serviced by the company even if cash flow remains the same as now) and ‘unsustainable’. An independent oversight agency will ascertain the economic viability of a project and the resolution plan.

The resolution plan needs to ensure that the unsustainable portion of the debt should be converted into equity/redeemable cumulative optionally convertible preference shares. The scheme also limits lenders from granting any fresh moratorium on interest or principal repayment or reduction of interest rate for servicing of the sustainable debt portion.

Analysts believe that this distinction between sustainable and unsustainable debt might also lead to problems and could cause limitations as it depended on the ability of banks to segregate stressed loans and the willingness of banks to absorb haircuts on the unsustainable portion.

Unlike the earlier norms, under new rules, the promoters are allowed to have management control. This, analysts believe, would create a moral hazard as equity writeoff always precedes debt.

However, bankers do expect a smoother resolution with this as compared to the earlier SDR norms. However, its impact will have to be tested over period of time to see how effective this tool had been in tackling bad loans problems being faced by the banking industry.

Source: Business Standard

India’s RBI eases guidelines for asset restructuring

India’s Reserve Bank of India (RBI) relaxed guidelines for lenders restructuring large stressed loans, a move that could allow banks to more effectively manage bad loans.

As per RBI’s statement on Monday, lenders would be allowed to differentiate between stressed loan accounts into the following two categories.

  • The sustainable debt portion that banks, or a lending syndicate, deem repayable and that the borrower would continue repaying on existing terms.
  • The second is the remainder that a borrower is deemed unable to repay, which can now be converted into equity or convertible debt, giving lenders a chance to eventually recover funds if and when the borrower is able to turn around its business.

However, it should be noted that the above categories would only apply on loans of over INR 5bn ($74m) from a single bank or a syndicate, and only if a borrower’s project is already in commercial operation.

The move comes amid RBI’s deadline of March 2017 to banks to clear up their balance sheets of non-performing loans, which has swelled to about $120bn.

Source: Reuters


Adani India interested in SunEdison’s Indian assets

Adani Green Energy, a subsidiary of the Adani Group, was looking to acquire renewable energy projects owned by SunEdison India, subsidiary of the bankrupt parentco SunEdison.

Soon after a bankruptcy filing by the US-based developer, several Indian companies were reported to have expressed interest in acquiring SunEdison India’s projects.

SunEdison India already operates 700 MW of renewable energy capacity, mostly in the form of solar power projects, with an additional 1.7 GW under development. The company sold 425 MW of solar projects in India to its yieldco TerraForm Global for $231m in 2015.

The company also owns wind energy projects, some of which it acquired last year from Fersa Energías Renovables.

Around 1,000 MW of solar capacity is being developed or secured by SunEdison in competitive auctions, which includes the 500 MW project SunEdison won in the Andhra Pradesh auction.

The project was among the most economical projects in India, in terms of tariff.

Apart from Adani Green Energy, Tata Power Renewable Energy is also believed to have expressed interest in acquiring SunEdison’s assets.

Source: CleanTechnica

RBI Governor Rajan asks banks to refrain from taking majority stake in stressed-debt funds

According to Reserve Bank of India’s Governor Raghuram Rajan, banks should refrain from taking a majority stake in planned stressed-asset funds, and prefers external investors and funds to take up that role.

His words came amid the Indian government’s plans to find ways to lower bank’s distressed debt pile of $120bn, or 11.5% of all loans.

However, bankers have said talks are on for two kinds of stressed-asset funds: one that would buy bad loans from the banks and the other that can invest in companies needing more capital.

Rajan also stressed that pricing would be a key issue for a stressed fund if it wanted to buy bad loans from the banks.

The government, as part of its plan of implementing new bankruptcy laws, is considering setting up an external panel to decide on the quantum of ‘haircuts’ taken on the bad loans, mainly due to disagreements between companies and banks at the time of transacting on such loans.

Source: Reuters

World Bank cuts forecast for India’s growth to 7.6-7.7%

The World Bank on Tuesday cut GDP growth projections for India by up to three percentage points to 7.6-7.7% for fiscal years 2016-17 and 2017-18 despite 5 rate cuts which failed to spur corporate lending.

Previously, in January this year, India was projected to grow at 7.9% during both these years.

Despite the reduction in forecasts, India would continue to be the fastest growing major economy in the world.

However, the World Bank warned of headwinds the country could face in the next few years.

Monsoons in India would largely determine the growth of the country’s economy as rural consumption has been affected over the last couple of years by lower than expected rainfall.

Credit growth in the corporate sector has been hampered by rising stressed assets in the aviation, steel and infrastructure sectors.

However, efforts made by India to ramp up FDI in various sectors would help bring in much desired investment in manufacturing and service sectors.

The ‘Make in India’ campaign, aimed at spurring FDI, has seen investment pledges worth $45bn as of December 2015.

Source: Business Standard



India’s Adani Green Energy may tie up with SunEdison for its $2bn solar foray

India-based conglomerate Adani Group’s renewable energy subsidiary Adani Green Energy, was considering a technical partnership with bankrupt U.S. firm SunEdison Inc., as part of the its $2bn foray into the solar manufacturing business.

If successful, Adani Green Energy’s integrated solar manufacturing plant would be the first of its kind in the country. It has created a special purpose vehicle, Mundra Solar PV Ltd, to handle the project

India currently has 14 manufacturers of solar cells producing 1212 MW of cells annually and 81 makers of solar modules who produce a total of 5620 MW. However, there were practically no manufacturers of polysilicon or polysilicon wafers, all of which is imported, due to high investments required.

In the first phase, work on which has already begun, a solar cell and module manufacturing plant was being set up by the company at a cost of INR 20,000m.

With a capacity of 1200 MW, the project is expected to be complete by December 2016, and would double the country’s cell manufacturing capacity.

In the second phase, Adani plans to expand capacity to 2000 MW and start making silicon wafers. It is in the third phase that polysilicon manufacturing would begin.

However, the company expects an offtake guarantee from the government prior to manufacturing these wafers.

For the third phase, a technical tie up would be necessary for which Adani might rope in a JV partner.

Source: Economic Times

India’s Jaypee Group defaults on debt & interest payments

India-based infrastructure conglomerate Jaypee Group defaulted on its debt and certain other payments, including that on debt, worth INR 44,600m ($661m).

The conglomerate owes INR 29,056m to banks and INR 15,589m in interest payments.

Bank debt, interest payments and other payments owed by Jaypee Group’s subsidiaries is as follows:

  • Jaiprakash Associates owed debt of INR 21,831m, INR 8,374m in interest payments
  • Jaiprakash Power Ventures owed debt of INR 6,884m, INR 1,521m in interest payments
  • Jaypee Cement owed debt of INR 339m of debt, INR 631m in interest payments

Additionally, overdue interest included INR 1,930m on Jaypee Infratech, INR 30m on Jaypee Agra Vikas Ltd, INR 3,086m on Prayagraj Power Generation Ltd, INR 7m on Madhya Pradesh Jaypee Minerals Ltd and INR 6m on Bhilai Jaypee Cement, all of which are Jaypee Group’s subsidiaries.

In order to lower its debt burden, the company divested certain of its cement assets and hydro-power assets to raise c.INR 190,000m ($2.8bn) earlier this year.

Source: Economic Times

Nomura lowers India’s GDP growth to 7.7% for FY17

Nomura marginally lowered India’s GDP growth for FY’17 to 7.7% from its earlier forecast of 7.8% on identifying no concrete signs a turnaround in the nation’s exports or private capex.
Underlying recovery in India’s economy continued at a gradual pace, driven primarily by private consumption. 
Nomura stated that, going forward, there were three positive catalysts to India’s growth, which comprised of the seventh pay commission hikes, a normal monsoon and ongoing public capex. 
However, India’s leading indicators suggested that there was still no sign of a turnaround in export volumes or increased private capex. 
Regarding the Reserve Bank of India’s (RBI) monetary policy stance, the report said the central bank is expected to be on hold this year. 

Axis Bank to issue a $500m green bond

India-based private lender Axis Bank plans to raise at least $500m through green bonds from the international market, the first such issue for the private lender.

India’s third largest private bank would be the fifth issuer of green bonds in India since Yes Bank issued the first such bond in February 2015 to raise INR 1,000 crore. Other lenders that have raised green bonds include IDBI Bank and Exim Bank.

According to bankers involved in the issuance, initial pricing guidance for the Axis Bank’s issue is 175 basis points over the US Treasury note. The bonds would be priced late evening on Monday after assessing demand from US investors.

Green bonds are like any other debt instrument but the funds raised from such a bond sale are used exclusively for renewable energy projects. With the Indian government and private sector increasingly focusing on renewable energy projects, the demand for such funds is expected to rise over time.

India has a target of installing 100GW of solar power capacity and 60GW of wind power capacity by 2022. The total installed capacity of renewable energy stands at 30GW, of which wind energy projects account for 24GW, solar contributes 5GW and the rest comes from smaller sources, such as biomass.

An Indian private bank may pay at least 190 bps above US Treasury notes to raise capital through medium-term notes (MTN). But the bank can raise funds through green bonds at 15-20 bps lower.

Separately, another state-owned Indian lender, IDBI Bank, was also looking to issue a second set of green bonds. The funds raised will be part of $2 billion MTN programme.

Fitch Ratings has assigned a rating of BBB- with a stable outlook to the proposed $500m bond issue by Axis Bank.

The tenor is likely to be around five years, and the notes are to be issued by Axis Bank’s Dubai International Financial Centre branch.

Source: Livemint