Renewable energy firms and state power distribution companies fear a funding crunch in the power sector due to the takeover of REC by Power Finance Corp (PFC), even as both state-run firms started meeting stakeholders to allay their concerns.
The two companies that finance power projects recently met credit ratings firms, which have put their borrowing programs on ‘credit watch’ after the announcement of the deal in the first week of December.
Power distribution companies of at least three states said REC’s disbursements have slowed down. REC was finding it difficult to raised funds due to the ‘credit watch’ status put on them by ratings firms, but declined to comment further.
It is usual for ratings firms to put companies on ‘credit watch’ during M&As, as they assess the impact of the deals on the credit profile.
REC had scrapped two bond issues to raise about Rs 3,000 crore each in December and January due to high interest rates. Its average borrowing cost was 7.38% last fiscal year, which has shot up by 60-65 basis points in recent bond issues.
There are lots of negative sentiments in the market about the REC-PFC acquisition. The companies have met the rating agencies to dispel the fears in the market.
The fear of fund crunch also emerges from the fact that most other banks have hit their sectoral limits and have stopped lending due to stressed loans.
Reference- Economic Times, PFC, Discom Officials