Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian FIs: DPC concerns - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 14, 2001

    Indian FIs: DPC concerns

    The Enron bankruptcy has raised apprehensions about the exposure of domestic institutions to the Dabhol Power Company (DPC), which is a 65% subsidiary of Enron. The US based energy giant has already filed for Chapter 11 bankruptcy and consequently loans to the company are likely to turn non-performing.

    Domestic lenders however do not have direct exposure to Enron but to DPC. As a result they are not required to classify their loans as NPAs if DPC can find a buyer before the end of current fiscal. Enron’s global crisis has however made the matter more complicated. Financial institutions would not allow the company to divest the stake unless Enron settles its debts. On the other hand domestic bidders are also driving a hard bargain. They were willing to pay about US$ 400 m for Enron’s stake before Enron Corp. declared bankruptcy. This is much below Enron’s earlier demand of US$ 1 bn. Now they are offering just US$ 100-200 m for equity stake in DPC. But whether Enron would accept the offer depends on its willingness to pull out of this issue. With the problem the company is facing in the US it may be possible that the management agrees to accept the offer at lower price.

    If the matter remains pending towards the year-end, domestic lenders are likely to take a hit on fee based income and they will have to classify loans as NPAs. Domestic financial entities have lent Rs 54 bn, with IDBI having the highest exposure of Rs 23 bn (5% of total loans). The Enron issue has brought asset quality issues to the fore again, impacting ICICI and SBI negatively.

    The DPC project was in any case facing problems due to MSEB not paying up for the power purchased. DPC has less than US$ 10 m in its bank accounts and its cash flow situation has severely deteriorated over the last few months. The three key financial entities will not only end up paying the guarantees on this project but may also need to restructure their loan by reducing interest rates to make the project viable.

    Key ratios
    Rs bn Loan to Enron % of total loans % of networth % of gross NPAs
    SBI 17 1.5% 12.6% 10.7%
    IDBI 23 4.7% 25.1% 21.1%
    ICICI 14 2.8% 16.8% 23.4%
    Total 54 2.5% 17.4% 16.5%

    The DPC concerns have already resulted in a considerable hammering of these three entities on the stock market. Their lower price to book value reflects the inherent risk to the asset quality. ICICI Bank (the merged entity) is trading at a Price/Book value ratio of 0.7x, followed by 0.2x for IDBI and 0.6x for SBI, their FY02 projected earnings.



    Equitymaster requests your view! Post a comment on "Indian FIs: DPC concerns". Click here!


    More Views on News

    Insider at It Again. This Time Stealing from Buffett and Berkshire (The 5 Minute Wrapup)

    Aug 12, 2017

    What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Central Depository Services (India) Ltd. (IPO)

    Jun 19, 2017

    Should one subscribe to the IPO of CDSL Ltd?

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms