http://www.livemint.com/Politics/3HmNix4ldNV9owTdAcNuaN/EPFO-LIC-to-back-power-utility-bailouts.html
follow the money
the buyers of last resort epfo and lic buy bonds issued buy the states to refi the utility distribution quagmire, the refi goes to the other buyer of last resort pfc which will roll it into bank or sovereign bonds, and psu banks will not have to classify bad loans as bad loans
lic premium product default rate is the bet (premiums sold in year 1 default at a rate of x which, less commissions, do not renew and, hence, the residual premium turns into investable surplus)
follow the money
the buyers of last resort epfo and lic buy bonds issued buy the states to refi the utility distribution quagmire, the refi goes to the other buyer of last resort pfc which will roll it into bank or sovereign bonds, and psu banks will not have to classify bad loans as bad loans
lic premium product default rate is the bet (premiums sold in year 1 default at a rate of x which, less commissions, do not renew and, hence, the residual premium turns into investable surplus)
The Employees’ Provident Fund Organisation (EPFO) and state-run insurer Life Insurance Corporation of India (LIC) will assist states to clean up the books of their bleeding power utilities.
EPFO, the state-run retirement fund manager, and LIC will subscribe to the bonds to be issued by five state governments to raise Rs.60,000 crore under the debt recast scheme, Ujwal Discom Assurance Yojana (Uday), launched on 5 November.
The money will be used to retire debt owed by the utilities to Rural Electrification Corporation and Power Finance Corporation, top government officials said.
The government wants to turn around debt-ridden distribution companies by letting states take over their collective debt of Rs.4.3 trillion, so that their ability to purchase power improves—a key requisite to incentivise fresh investments in power generation, including in renewable energy.
India has set itself the target of creating capacity of 175 gigawatts (GW) of renewable power by 2022 from 4.5 GW at present.
Power minister Piyush Goyal said that provident fund organizations and insurance companies have shown a great deal of interest in the bonds to be issued by states under Uday.
“Uday bonds will largely be subscribed by these agencies, which will also allay fears expressed from some quarters,” Goyal said.
Some bankers were worried that states taking over discom debt could be construed as a loan-restructuring exercise. This would mean that these loans would need to be classified as bad loans, putting more pressure on the balance sheet of banks. Under existing rules, any account restructured for a second time should be classified as a non-performing asset (NPA).
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