How did our valuation approach facilitate lenders to efficiently recover debts?
Valuation of damaged Hydro Project
We have been assigned to valuate a flood-damaged hydro project which was admitted to CIRP (Corporate Insolvency Resolution Process) under IBC. When the plant was flooded & damaged, it was under construction.
All the civil works like intake dam, tunnels, powerhouse, etc have been damaged extensively and equipment was washed away.
Challenges/Roadblocks for Valuation
- Major equipment was washed away & approach roads to the project were inaccessible
- The powerhouse was underwater.
- Absence of power purchase agreement/expiry of the same.
- A slump in the general economy & excessive supply of power compared to the demand.
- Availability of alternative cheaper renewable energy sources
The problems leading to impairment in value
- Any bidder who takes over the company has to deal with statutory approvals, terminated contracts, and expired PPA(Purchase Price Agreement
- Difficult to find a buyer due to lower tariffs.
- Unpredictable geological conditions
- Longer completion time due to extensive damage.
- Cost escalation
In view of the fact that the power plant was already partly constructed with major civil works completed, a valuation approach had to be adopted to arrive at valuations that could practically be used to fetch maximum returns for the lenders.
The valuation of this plant, machinery, and civil works is under consideration after the balance of the plant and machinery is completed.
This approach facilitated the lenders to take a decision to dispose of this plant in the best possible manner to recover debts.