Investment Opportunities Track in Stressed Thermal Power Assets of India & Projects Database 2018:

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1 Investment Opportunities Track in Stressed Thermal Power Assets of India & Projects Database 2018: Market Opportunity Analysis for Stressed Assets and Nonperforming assets vis-à-vis Investment and M&A Drive for Foreign Players. Complete Tracker of Assets with all details as per different categories E-REP Market Research Series September 2018

2 ~ 25 GW Existing Capacity Stressed MW ~ 40 GW Capacity Stressed Debt (INR.Crores) Nonavailability of fuel/fsa Issues Load of Debt ~ 51,000 MW of existing generation capacity is likely to get impacted by RBI s new norm Key reasons for NPA in Power Sector 87% 64% Lack of PPAs by States 43% Source: enincon survey Inadequate equity & working capital Existing Capacity Total Capacity 0 Currently about 85 GW private sector assets are under operation ~INR.175 Crores OS Debt ~15 GW Upcoming Capacity Stressed 2018 Under Construction Total Outstanding debt Projects as NPAs RBI new notification likely to impact power projects which are repaying their debts. More than half of INR. 9 Lakh Crores of Stressed Assets only in Power Generation sector alone. 0

3 Why enincon s report upon Investment Opportunities Track in Stressed Thermal Power Assets of India & Project Database 2018 UNLEASHING INVESTMENT OPPORTUNITIES IN STRESSED ASSETS OF THERMAL POWER GENERATION SECTOR OF INDIA CLOSE TO 70% THERMAL POWER CAPACITY IN INDIA ARE ON HIGH RISK IN SLIPPING INTO STRESSED ASSETS CATEGORY India has seen tremendous growth rate in terms of capacity additions in thermal power capacity in the country specially post the spruced up participation by private developers. Currently the country boasts a cumulative capacity of 85 GW by independent power producers, of which most of the operators have the threat lurking on them to be pushed into NPA category. With growing burden on the IPPs close 40GW of the 85 GW are qualified as stressed assets. The stressed assets also comprise of NPAs and those who all in likelihood may transform into one. Currently, as identified by the Government 34 projects by the independent power producers do fall under the stressed category with 15 GW of upcoming and 25 GW of existing capacity are stressed. These assets are those which have slipped into to stressed assets owing to their slippage from watch list due to following reasons: I. Non-availability of fuel or issues with Fuel Supply Agreement (for the plants under upcoming category) II. Lack of PPAs or non-integrated tying up of entire installed capacity with off-takers III. Inadequate equity infusion by the developers or lack of flow in working capital IV. Issues in contractual status of the asset/tariff related issues V. Due to delays in project implementations and aggressive bidding by the developers to seek PPAs Following such massive capacities already in the stressed category and further with new norms of RBI in place another good 50 GW of capacity is likely to be hit and demarcated under stressed assets which shall also have capacities of NTPC and SEBs. On one side of the coin the generation sector especially vis-à-vis private sector looks to have a torrid time in their business and on another side is going to offer massive opportunity for the foreign players which are keen on asset acquisition to boost their portfolio in India.

4 INR. Billion Share of Debt in %age This situation despite the doom for IPPs offer immense opportunity for the strategic advisors, valuation companies, credit rating agencies and FIIs/Banks to felicitate the M&A drive and that is the precise thing which our analysts & consultants wanted to engage in with. Filtration of each stressed under sub-category of reasons for them being turned into one shall be done firstly and then a cumulative rank matrix shall be developed to pass through each asset through it. We shall conduct in-depth primary survey to discover the opportunity for each player and based on regional dynamics for the country. Following the filtration exercise each category shall see few assets stand out as most-fit for investments for which a detailed due-diligence report shall be done by enincon s expert team so that decision making for expediting any future deal becomes easier for the investment agencies. Not only this a rank matrix for the projects shall be also derived with an outlook of projects which may join the fleet of firstly stressed assets and then into NPAs with timeline of each exactly demonstrating the horizon for such transformation. This report is an attempt to list all the projects which key insights on each on of them to engage in M&A drive with escalated valuations so that the bail out is easier, at least for the projects under recovery. Also, with new RBI norms (if found implementation) most projects have a risk to turn NPAs for want of marginal fusion of investment and not turn into bad loans owing to previous massive investments % 60% 50% 40% 30% Share of Power Debt with IC<1 Back to 57% % 10% Power Sector debt with IC<1 (INR.Bn) Share of debt with IC<1 (%) (RHS) 0 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 0% Source: enincon research & analysis, Bloomberg, Credit Suisse

5 INR. Crores Exhibit: Power Finance Corporation Loan Exposure to Private Power Plant Developers & NPA/Likely NPA Details Power Finance Corporation : Loan Asset Details & Risk Quantum Public & Private Players in INR.Crores Public Sector 83% Private Sector 17% Risk Zone for PFC Exposure to IPPs 68% 32% Regular Loans INR. 14,000 Crores 0 6.5% Of Loan Book Pose Risk of NPA Classification & Likely Haircut INR. 17,000 Crores NPA/Restructured/ Stressed INR. 30,000 Crores 79% 21% Non-Performing Asset INR. 8,500 Crores Loan with ticket size below INR.2000 Cr. INR. 4,500 Source: enincon research & analysis, Bloomberg, Deutsche Bank & PFC

6 BUSINESS CASE FOR INVESTMENT OPPORTUNITIES IN STRESSED AND NON-PERFORMING THERMAL POWER ASSETS With new RBI norms in place close to 51 GW of fresh capacity may become stressed and slip into NPAs presenting huge opportunity for companies like NTPC & Tata Power to articulate strategic acquisition in the country Currently 25 GW of thermal plants are under NPA category and another 15 GW under stressed category and among this cumulative capacity scores of good assets are present which need in-depth due diligence for robust investments Given the assimilation of stressed assets across the country chance of bankers and lenders going for a debt restructuring is certain and that opens entire market for FDI as power generation business is open for 100% of it For the assets of SEBs which may slip under the NPA category from the stressed one s owing to lack of equity capital or operation management issues there exists an opportunity to bail out and sell off their assets to the effective owner with affecting PPAs For the IPPs which are struggling with issues of FSA and PPAs from the discom s it shall be best opportunity for such players to have recovery of their assets or simply exit through by engaging in profitable M&A drive REPORT INSIGHTS Identification of right market strategy for engaging in M&A drive for the stressed assets/npa Detailed examination of reasons for incidence of non-performing assets basis both internal & external factors Holistic comparison of India with Global majors in terms of running NPAs and likelihood of projects slipping into them Financial Attractive Indexation for TPPs in India through business case identification in current power generation mix of the country Comprehensive track of stressed thermal power assets on basis of region & developer involving private, central & SEB track separately with the inflection analysis for new RBI norms Tracker for willful defaulter s in thermal power generation business with split of region, bank & state wise split compounded with loan amount details to be serviced Detailed and robust analysis to judge the assets quality through parametric attractiveness index enabling M&A drive of asset sale. Complete market sizing of good assets, loss assets and the one s which may have the tendency to be marked as NPAs from the watch list basis detailed due diligence from enincon s expert team Profiles and detailed track of state, developer & region wise track of NPAs/Stressed assets due to unavailability of fuel Profiles and detailed track of state, developer & region wise track of NPAs/Stressed assets due to lack of PPAs with respective discoms Profiles and detailed track of state, developer & region wise track of NPAs/Stressed assets due to inability of promoter to infuse equity and working capital Profiles and detailed track of state, developer & region wise track of NPAs/Stressed assets due to contractual or tariff issues

7 KEY HIGHLIGHTS Thermal power generation round-up in India with details basis region, developer & technology of generation involved in India Comprehensive business case evaluation of thermal power plants in India with drivers, increasing renewable portfolio, PPA issues & challenges etc. Opportunity Sizing for investors, developers and FIIs/Bank to invest in stressed assets to increase their valuation before engaging in M&A activity Financial Attractiveness Index for NPA s and stressed assets basis region, state s and owner basis which were on path of recovery owing to increased power demand cycles in India Analysis of willful defaulters engaged in thermal power generation basis on state, region and bank wise outstanding amount to filter out assets for quarantine Analyzing the asset quality with comprehensive due diligence of select filtered assets to indicate their attractiveness in terms of re-investments or practicing an exit option from the business Holistic analysis of stressed assets and the watch list assets which might slip into stressed category owing to RBI norms on fuel availability issues Holistic analysis of stressed assets and the watch list assets which might slip into stressed category owing to RBI norms on lack of PPAs with discoms Holistic analysis of stressed assets and the watch list assets which might slip into stressed category owing to RBI norms on equity capital lack, contractual/tariff delays or aggressive bidding by the developers etc. Enincon s recommendation for filtered assets vis-à-vis the time bound horizon which shall clearly be useful for strategic consultants, credit rating agencies and ARCs as well.

8 PRESS EXCERPTS Most lenders to stressed power assets were making recoveries on their loans gone bad through resolution under the bankruptcy law and that the ministry did not expect more public sector banks to come under the RBI s Prompt Corrective Action (PCA) framework Economic Times The whole part of foreign portfolio investments (FPI) to invest in debt instruments is good. This has created a level playing field for foreign and domestic funds and much more is required to solve the problem of the mammoth size that India currently face Live Mint KEY QUERIES ADDRESSED What shall be in-store for India owing to the stressed thermal power assets? Who are the willful defaulters in thermal power plant category across different regions and states in the country? What shall be scale of opportunity for investments in the stressed assets and good NPAs? What are the stressed assets which are affected due to lack of fuel supply and which are the assets which may slip into NPAs due to this reason? What are the stressed assets which are affected due to lack of PPA s and which are the assets which may slip into NPAs due to this reason? What are the stressed assets which are affected due to inadequate equity capital and which are the assets which may slip into NPAs due to this reason? What are the stressed assets which are affected due to contractual/tariff related issues and which are the assets which may slip into NPAs due to this reason? What are the stressed assets which are affected due to project implementation and aggressive bidding by developers and which are the assets which may slip into NPAs due to this reason? How the financial & operational viability for the NPAs to be assessed to ascertain investment drive or M&A drive in them?

9 MUST BUY FOR Investment Banking Firms Credit Rating Agencies Public Sector Banks & Lending Bodies Private Sector Banks & lending Bodies FII s & Diligence Companies Private Thermal Power Project Developers Central Thermal Power Project Developers State Thermal Power Project Developers Power Distribution Utilities ARCs Industry Associations Strategic Consultants Management Consultants Government & Regulatory Bodies Research Institutions/Bodies COMPANIES MENTIONED Adani Power Limited Avantha Power Limited Athena Chhattisgarh Power Pvt. Limited Essar Power Limited GMR Energy Limited GVK Industries Limited Ind Bharath Energy Limited Jaypee Power Ventures Limited KSK Mahanadi Power Limited Lanco Madhucon Monnet Power Rattan India Power Limited Visa Power Limited DVC NTPC

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