Reliance Power Defaults on Interest Payment

The last few days have seen rather challenging times for the ADAG group. Earlier in the week, the RBI superseded the board of Reliance Capital and took over the management of the company. RBI was of the view that Reliance Capital posed a systemic risk.

This is the third case of NBFCs where RBI has specially intervened after Dewan Housing and SREI. The next logical step is referring Reliance Capital to NCLT.

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The decision by the RBI in the Reliance Capital case was triggered by a series of defaults by Reliance Capital. Now, another group company of the ADAG group, Reliance Power has also defaulted on loans. Incidentally, Reliance Power was the mega IPO in 2008, which marked the end of the structural 5-year bull rally, coinciding with the sub-prime crisis.

Currently, Reliance Power has borrowed Rs.42 crore from IDBI Bank and Rs.113 crore from DBS Bank. In addition, Reliance Power also has large funds from Yes Bank.

The interest amounts due were not too large; it was Rs.44 lakh on the IDBI Bank loan and Rs.1.17 crore on the DBS Bank loan. However, Reliance Power defaulted on both these payments.

The total outstanding debt of Reliance Power (including long term and short term debt) stands at Rs.1,440 crore. This amount is inclusive of accrued interest and the largest share of loans is from Yes Bank at Rs.1,163 crore followed by DBS Bank and IDBI Bank in terms of exposure.

Currently, Reliance Power is already working closely with the lending banks to hammer out a workable debt recast solution.

Apart from these banks Reliance Power has also been defaulting on its payment commitments to other banks including Axis Bank, Yes Bank and Lakshmi Vilas Bank. Reliance Power has weak solvency ratios as calculated by the interest coverage ratios and the debt service coverage ratios.

However, the good news for the creditors of Reliance Power would be that the company in question does have genuine assets to boot in its books.

It has a portfolio of power projects that are based out of coal, gas, hydro and other forms of renewable energy. It has a total operating portfolio of 5,945 MW. That is something that should give comfort to the creditors.