Power stocks gain, RattanIndia Power surges 12% on Supreme Court order

Shares of power companies gained up to 12 per cent on Tuesday after the Supreme Court quashed a Reserve Bank of India circular on resolving bad debt that may provide relief to these firms. Shares of RattanIndia Power zoomed 12.18 per cent, KSK Energy Ventures 4.60 per cent, Adani Power rose by 2.88 per cent and Jaiprakash Power Ventures 2.69 per cent on BSE.

Vishrov Mukerjee, Partner, J Sagar Associates said after the Supreme Court judgment, the RBI may have to issue revised guidelines or circulars for the restructuring of stressed assets. “There is also a question mark over existing processes which may have been completed/nearing completion,” he said. “However, with the threat of IBC proceedings mitigated, it will give some breathing space to power companies and lenders as well as flexibility to restructure debts in a manner which ensures continuity and value maximisation for lenders as well as power companies,” he added.

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Supreme Court on Tuesday quashed RBI’s February 12 circular , which prescribed rules for recognising one-day defaults by large corporate and initiating insolvency action as a remedy. According to the circular, lenders had to classify a loan account as stressed if there was even a day of default. The bankers had to mandatorily refer all accounts with over Rs 2,000 crore loans to the National Company Law Tribunal (NCLT) or the bankruptcy court if they failed to resolve the problem within 180 days of default.

Lenders were supposed to file an insolvency application under the Insolvency and Bankruptcy Code 2016 within 15 days of the completion of the 180-day deadline. Power sector was the worst hit by the circular and so were companies in steel, textile, sugar and shipping sector.

GMR Energy Ltd, RattanIndia Power Ltd, Association of Power Producers (APP), Independent Power Producers Association of India, Sugar Manufacturing Association from Tamil Nadu and a shipbuilding association from Gujarat moved different courts against the circular.

The power sector argued that outstanding loans of Rs 5.65 lakh crore (as on March 2018) were a result of factors beyond their control such as unavailability of fuel and cancellation of coal blocks. The Supreme Court Tuesday held that the circular was ‘ultra vires’ -- meaning it went beyond the scope of what the RBI can do when coming up with rules and regulations.