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Valuation of a partially-constructed Thermal Power Plant

By November 28, 2022Case Studies2 min read
Valuation of a partially-constructed Thermal Power Plant

How our team’s distinct approach helped lenders in making a firm decision to dispose of it & recover debts

Background

A Thermal plant located in south India was admitted into insolvency due to default in the debt payment to lenders.
We were assigned to carry out the valuation of the said thermal plant. It had two units of coal-operated power-generating units.
One unit had been operational & another unit had been under construction (non-operational).

Challenges for Valuation

  • Major equipment was imported & all the contracts expired.
  • Absence of the power purchase agreement.
  • The completion time period of the under-construction unit

The problem leading to impairment in value

  • Any bidder who takes over the company has to deal with statutory approvals, terminated contracts, and partial PPA
  • Absence of Fuel supply contracts
  • PPA for another unit after completion
  • Deterioration in plant & machinery
  • Cost escalation

Our Approach

Due to the partial construction of the power plant and the requirement of substantial investment to complete it, a valuation approach had to be adopted to obtain valuations that were practical for the lenders.

Solution Offered

Valuation of these assets under the consideration of growing concern after completion of balance plant & machinery.
Alternately valuation of the operational unit is a growing concern & the other unit as a piecemeal basis

Conclusion:

This approach facilitated the lenders to take a decision to dispose of this plant in the best possible manner to recover debts.

Also Read, An Ambitious Manufacturing Company Became Insolvent Due To Economic Sanctions