What went wrong for PFC?

Power Finance Corporation, which was once hailed as a blue-chip company, is now reeling under bad loans. The public sector lender’s gross non-performing assets (NPAs) have more than trebled during 2015.  So what went wrong for the Navratna PSU?

It appears that PFC threw caution to the wind while approving loans in certain cases. Cases in point are loans extended by the company to Suzlon Energy Ltd and Videocon Ltd.

In 2013, the Central Vigilance Commission (CVC) had received complaints against sanction of loans in both the cases and asked the power ministry to investigate the same.

PFC’s mandate was limited to financing power sector projects but it sanctioned loan of Rs 2,200 crore to Videocon for financing its oil and gas operations in Mozambique and Brazil. Both the loans apparently were extended during 2010-11.

“We have started very recently the global operations by sanctioning the loan of Rs.2,200 crore to Videocon for the Mozambique oilfields, gas fields actually with a provision that they will bring that gas to India, which will facilitate power generation in India,” Satnam Singh, the then PFC chairman, told investors in November 2012 while sharing information about progress in company’s new business initiatives.

It appears that PFC’s due diligence for extending Rs 934 crore in loans to Suzlon Energy was also shoddy.

PFC had lent the money to Suzlon to meet its capital expenditure requirement for manufacturing wind turbines. It is not clear why an established company like Suzlon will have to borrow money for capital expenditure.

Due diligence done by PFC for loans extended to Maheshwar hydel and RS India wind projects also leaves a lot to be desired.

Shree Maheshwar hydel project in Madhya Pradesh became non-performing asset because the promoter could not arrange the required equity, though the project was ready for commissioning -- at least part of its three out of 10 units in a period of three-to-six months time if the money was available.

When promoters had such a weak balance sheets, on what basis did PFC extend loan to the project was not clear.

RS India wind project became non-performing loan because the repayment fell in the off-peak revenue period because of the delay in commissioning. PFC had to restructure this loan.

PFC’s restructured loan portfolio stood at 24,100 crore at the end of December (up from Rs 22,300 crore in the previous quarter) which accounted for 90 per cent of its private sector exposure, according to analysts.