Power Finance Corporation Ltd
NSE:PFC
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Power Finance Corporation Ltd
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[Audio Gap]Thank you, Rio. Hi, good afternoon to everyone. We would like to welcome the management of Power Finance Corporation Limited. We have with us the MD and CEO, Mr. Rajeev Sharma, and other senior management members on the call. The management will take us through key highlights of the results and then we will move to Q&A. Thank you, and over to you, sir.
Thank you very much. Good afternoon, everyone. I welcome you all to this conference call. I called this conference call to share with you PFC's financial and operational performance in third quarter of FY '18/'19 and the progress on the acquisition deal and way forward. Firstly, I will share highlights on PFC's performance. I am happy to share that we have shown significant jump of 71% in profit from INR 1,217 crores to INR 2,076 crores on a year-on-year basis. Even our profit for 9 months of FY '18/'19 has shown a significant jump of 35% from INR 3,565 crores to INR 4,804 crores. Our interest spread increased by 18 basis points to 2.68% from 2.50% last quarter. Our net interest margin increased by 9 basis points to 3.42% from 3.33% last quarter. I am glad to inform you that our capital adequacy ratio has increased by more than 1% to about 19% from previous quarter against RBI requirement of 15%. It may also be noticed that our Tier 1 capital stands at about 16% against RBI requirement of 10%. Let me now explain our loan asset book. We have a total loan asset portfolio of about INR 2.98 lakh crores, out of which government sector borrowers, which comprised 82% of our loan book, are continuing to serve their dues regularly. Therefore, we do not see any stress in respect of government sector borrowers. In case of private sector exposure of about INR 51,700 crores, about INR 28,200 crores private sector loans are NPA or Stage III assets. Against these 27 projects, 52% provision has already been made. As informed in our last conference call that the stress cycle is behind us. I am glad to share that we have not added any new NPA or Stage III assets this quarter. Accordingly, our net NPAs have improved in this quarter. As was shared with you earlier, GVK Ratle project with loan of INR 811 crores has been resolved, and the borrower is servicing regularly. Therefore, the account is likely to upgrade in Q4 of this financial year. Now I will share with you the progress on some of the major stress projects. In 3 projects with aggregate exposure of INR 1,500 crores, we expect onetime settlement offers with 100% principal recovery where 15% provision has already been made. For Dans Energy and Shiga Energy, we are in advanced stages of discussions and are likely to close the process shortly. Essar transmission project, OTS proposal has been received, and lenders are obtaining approvals on the same. Two projects with our exposure of INR 2,845 crores are in advanced stage of resolution and are expected to be closed in this financial year. These projects are RattanIndia Amravati. In this project, OTS proposal was accepted by lenders, and LOI has been issued to RattanIndia on 5 February 2019. We expect to close this deal within this financial year. We believe that sufficient provision is already made on this account, and we also expect some reversals. GMR Chhattisgarh. In this project, 82% of lenders have already approved change in management proposal. We are going ahead with the resolution as other lenders have agreed and are in the process of getting approval. I would like to inform that there is sufficient provision on this account. There have been positive developments in 3 projects, which I would like to share with you. RattanIndia Nashik. PPA for 507 megawatts. About 38% of the capacity was under litigation earlier and now MERC approval has been obtained. This will help in increasing the sustainable debt. In the Barath Utkal, we have received expression of interest from 6 companies. All 6 bidders were qualified, and RFP has been finalized. We will shortly float RFP. The provision already made for this project is 48%. For Essar Mahan, we received onetime settlement offer from the existing management. Lenders have now received another nonbinding offer, significantly higher than OTS offered by existing promoter. Lenders are examining the proposal. Bidder sees a significant synergy with respect to its operations. The provision already made for this project is 53%, which is sufficient. In 2 projects with aggregate exposure of INR 4,064 crores, I would like to share some updates. Jhabua Power. Successful bidder was unable to comply with conditions so lenders canceled the LOA. Lenders have now decided to do rebidding. The provision already made for this project is 36%, which, according to us is sufficient. KSK Mahanadi. Lenders decided to approach NCLT. Talks are on with UP distribution companies on PPA front, which will help in higher scheduling of power. We expect similar recovery of about 47% as was being envisaged under the bidding process. In RKM PowerGen Stage I and II, with our exposure of INR 5,155 crores out of total capacity of 1,440 megawatt, PPA for 350 megawatt is already operational with UP DISCOMs. PPA for 550 megawatt under pilot PPA scheme will be operationalized shortly. PPA for 393 megawatt with Chhattisgarh state. Issue is being resolved under Chhattisgarh State Electricity Regulatory Commission. With this, the project will have PPA for 90% capacity, which is expected to improve the valuation of the project. As we have stated earlier, also we believe that, in terms of provisioning our provision coverage, it is adequate to absorb losses on stressed assets which are under resolution. As you are aware, 3 of our projects were successful in obtaining PPAs in the pilot PPA scheme. Now government has decided to launch pilot PPA Phase II, for which PFC Consulting Limited is the nodal agency again. This scheme will help in elevating stress projects greatly. With the government of India and all the stakeholders taking the necessary steps and with likely uptick in power demand, we are optimistic that the stress projects are likely to fetch better valuations going forward. Now I will give you an update on the status of transaction for acquisition of GoI's stake in REC. We have already received approval from Securities, Exchange Board of India with respect to related party transaction. We have also received approval from Competition Commission of India. We expect approval from RBI shortly. The deal is to be refunded by a mix of funds from internal resources or -- and debt from the market. The pricing for the transaction is yet to be finalized and shall be governed by SEBI guidelines. Let me assure you, we are taking all steps to ensure that our capital ratios are within the permissible regulatory requirements. Further, I also would like to clarify certain issues with respect to the acquisition deal. On credit ratings front, I would like to clarify that, after the announcement of the acquisition deal, that is PFC acquiring REC, few rating agencies have kept PFC's rating under watch. We have interacted with the ratings agencies, and they have indicated that there is no data available on the specifics of the deal and its impact. Hence they have kept the rating under watch. As and when the deal specifics are available along with the PFC's analysis of its impact and the road map to manage the same, the rating agencies would review and come out with rating excerpts. I would like to highlight here that if you see PFC's capital adequacy ratio, based on our efforts, we have improved the capital adequacy by almost 1.2% till last 2 quarters with current capital at almost 19%. You can also see that, along with PFC, REC has also improved their capital adequacy ratio this quarter by about 70 basis points. We are optimistic, given the measures we are taking, we would keep our capital levels as per the prescribed limits under the regulatory framework. On borrowing front, there are critical media reports on our borrowings. In this context, I would like to clarify that PFC has not tapped the bond market in last few months as the bond market was volatile with coupons at a premium primarily due to the low confidence in NBFC's post-IL&FS episode, and also due to the announcement of acquisition deal of PFC and REC by government in December 2018. In this regard, let me inform you that PFC has been raising funds from different sources, like bonds, term loans from banks, and looks at the cheapest source at the raising time. Last quarter, we have raised more than to INR 25,000 crore from the markets at a very competitive cost and also disbursed more than INR 14,000 crores in the last quarter. Our 9-month disbursement is also more than INR 45,000 crores against roughly INR 37,000 crores last year. We therefore, do not see any issue in our borrowing program for meeting our business requirement. We also have ECB market as another alternative source for borrowings. Now, we are open for questions.
[Operator Instructions] The first question is from the line of Srijan Sinha from Future Generali India Life Insurance.
Sir, my question is with respect to your capital adequacy. I'm sure you would have done some calculations about your postacquisition of the REC's stake. What would their capital adequacy look like in the specific tier 1 capital adequacy.
As you mentioned that, right now, we are at capital adequacy around 16% Tier I. Even that pricing has not been finalized about PFC, REC. I can't tell you the figures right now, but let me assure you that, after this deal, our capital adequacy, particularly Tier I, will definitely be much more than the regulatory requirement that's 10%.
You don't see any requirement to raise the Tier I equity capital?
No, no, not immediately.
Okay. And I mean, assuming that the deal happens at the current market price, which is about INR 120 for REC, would you have done some scenario, and this is a -- what could be the, I mean, the bare minimum capital adequacy that you would hit?
See, we have analyzed all the scenario, and let me again assure you that our capital adequacy definitely will be much than the regulatory requirements.
Okay, if you could help me with the regulatory requirements. Is it actually -- is it that the any amount that you pay over and above 10% of your net worth, that gets deducted from your net worth while calculating capital adequacy. Is that true?
Yes, that's right.
So in that case, my calculations chance that you will be very close to 11%, 11.5%. Is that something we should be looking at?
As I mentioned that we need 10%, and definitely, we will be much above 10%, and that will take care of my business requirement also -- future business requirement also.
Okay. And sir, my second question is with respect to RattanIndia Amravati. What kind of haircut are we looking at in this onetime settlement offer that we have received?
Actually, 64% of the principal we will be recovering.
Okay, 36% share, good. And sir, one final question is on what are your plans subsequent to acquiring the REC's stake? Do you plan to integrate the businesses and merge them into a single consolidated entity? Or would you want to run them separately?
Initially, it will be acquisition, and later, it will be merged. But it will take time.
Okay, which means over next -- over foreseeable future and over next 12 to 18 months, you don't see them merging?
See, not that different regulatory requirements again. We have to go through a different process for merger. So we initiate the actions, ultimately that this is to be done with the consultation of Ministry of Power and DIPAM.
The next question is from the line of Elesh Gopani from Gopani Securities Investment Private Limited.
PFC is a Navratna Company, so what will be the dividend distribution this year?
See, right now, we have not taken any decision. And whenever the board decides, we'll inform you. But I can't make any comment because that is a board prerogative to announce the dividend.
But it is compulsory to declare 30% of the profits as a Navratna Company.
That is the DIPAM guidelines. But we'll discuss all the positive, negative of everything, and then we'll come out with that.
Next question is from Ankit Chaudhry from Equirus Securities.
The first question is regarding this accounting treatment in the P&L. So with respect to this net gain on fair value changes on derivatives, sir, this figure has been quite volatile in 2Q, 1Q and again, in 3Q, both on the income as well as the expense side. So if you could just help me with regards to the accounting treatment for the same. Sir, how we will take this thing into calculation -- how do you calculate this thing?
See that on this value on derivatives, we get this valuation done through our bankers, and this figure is right, too. But you see that what has happened in comparison to September, the [indiscernible] rate has come down. It was 72% around at the end of month of September, which has come to 69% plus something. So that's why this figure has no. Substantially, we have gained on this account also. If I compare with the September, my total net expenditure on this gain and that loss -- transition losses, it was around INR 260 crores, which has come to more or less 0.
So first of all, if I talk about the derivatives, in 2Q, there was no loss on that. So ultimately, there was a gain of INR 388 crores in 2Q. Whereas in 3Q, there was no gain, whereas, there was a loss of approximately INR 361 crores. So I am not talking about the transaction exchange loss right now, I'm just talking about the fair value change on derivatives.
Yes. We carry out the fair value on these transactions. This is done by our bankers and whatever figures we arrive to that we provide in the accounts.
Okay. So sir, these derivatives that we are doing, they are hedging -- hedged -- sir, hedges against the borrowings -- foreign borrowings?
See, hedging we are depicting separately. So we have a hedging also so that any loss on that even hedging transactions we show separately as a net gain or loss in the fair value. And this translation loss that is shown separately in the profit, loss amount.
So sir, just trying to understand, which derivative or instruments are these when we are having these MTMs?
It's underlined -- against underlined liability.
Against underlying liabilities.
Swaps.
Swaps, et cetera.
Got it. And what will be the outstanding of these, right now? The underlying liabilities?
Underlying liabilities.
Underlying liabilities. For net transaction or...
You want for health transactions.
For other derivatives. Just talking...
USD 1,800 million.
USD 1,800 million.
USD 1,800 million
USD?
Yes, USD.
Okay, and lastly, on this, sir, out of the total private sector loans, what percentage of loans are currently servicing on the regular basis?
82% is government, and about 8% private sector is regularly paying. 7% to 8%.
Got it. So total 90% is regularly paying?
Yes.
And sir, just one thing, during the quarter, we have seen a reversal of provisions on the season Stage II effect. So just trying to understand like is it due to the changes in assumption or some asset which has moved from Stage II to Stage I that has led to the [indiscernible] provision?
See in 2016/'17, we classified one Chhattisgarh government project under restructuring NPA. So this came out from NPA in 2017/'18. Now after completion of 2 years, this has come out from even restructuring also. So that was a -- provision has been reversed.
Okay. And what was the quantum, sir, on this account?
I think around INR 200 crores.
INR 6,300 crores
INR 6,300 crores.
The INR 6,300 crores was the loan amount, and the provision was INR 260 crores around.
The next question is from Gaurav Bhuwania from FirstRand Bank.
Sir, my question would be on the Stage II assets. On your slide you have shown a combined figure of Stage I and Stage II assets. So how much would be the Stage II assets? And what kind of assets are they?
We don't have anything Stage II.
Okay.
See, we classified some of the assets even though they are making payments if there is a delay more than 30 days.
So how much are the Stage II assets?
It is around INR 7,000 crores, but they have cleared their dues because they were at that time in the month of December, on the 31 December, there was delay of more than 30 days. That's why this INR 7,000 crores is categorized as Stage II.
So these are the private sector or the state loan and borrowers?
It is about 70% in the state and 35% -- 65% is state and 35% is private loans.
Sir, any likelihood going ahead we can see some of this private Stage II borrowers migrating to Stage III assets?
See but they are all repaid loans they have paid in the month of January because the date of order...
I understand, but they did -- there was a delay of 30 days, so going ahead, there might be delays. So any likelihood any of such assets would migrate to Stage III?
See, it nearly depends on the -- because they get the money from DISCOMs, sometimes there's a delay in getting the money that was the delay in repayment of PFC, but we don't emphasize that there is going to be any stress on these projects or delays in payment. Maybe in Stage II, but ultimately, we don't feel that there is going to be any stress on the repayments.
Okay. And sir, as you mentioned earlier, there was a reversal of provisions during quarter 3, so any more reversal of provisions going head?
At CMD, it was already mentioned, the one assets, which we...
So I understand -- sorry to interrupt. I understand the reversal during quarter 3 but future reversals?
I'm talking about quarter 4 only. We have all this settled, and that borrower is regularly making a payment. We are expecting that the reversal will take place in Q4.
And how much quantum, sir?
It may be around INR 600 crores.
INR 811 crores.
That is the loan amount, provisions.
And amongst the 7% to 8% of your standard private sector borrowers, who would be the largest exposures?
It will be this 2 x 600-megawatt Hindustan Power.
How much?
Hindustan Power exposure may be around 2,500 [Foreign Language] How much?
We'll let you know.
The next question is from Love Sharma from Lombard Odier Asset Management.
Just wanted to check something regarding the PPA acquisition. And if we understand correctly [indiscernible] group loss for their user bonds? Can you just update if there is any progress in terms of what the company will be trying to do if there's a potential requirement to buy back those bonds?
Can you please repeat the question again?
It's basically regarding the REC's U.S. dollar bonds, so post the acquisition by Power Finance. There should be a change of control provision on those bonds which should be triggered. And so from company's point of view, is there something which you are concerned about? Or is there a plan to buyback those bonds?
So we will settle, but that process is already on. They have appointed the bankers. The process is being regularly monitored by DIPAM and...
We are in process of getting the consent from all the bondholders.
Okay, okay. So the understanding is that the bonds should -- would be repurchased, essentially?
See, not necessarily, that REC will decide. But they are working on take a consent from all the bondholders.
The next question is from the line of Punit Srivastava from Daiwa Capital.
Sir, my first question is on the -- this acquisition postacquisition, how do you see basically the competitive dynamics in lending to the power sector changes? Because on a combined basis, you'll be much larger entity. So what are the positives, if you can highlight on that?
Positives would be that we can jointly resolve the stress effects because now the decision-making process is very, very long. Now if REC and PFC go along, we can take quick decisions. And there is abundant business available in the sector. They are -- REC is a leader in transmission and distribution funding, and we are leader in generation funding. So we can learn from each other. So PFC can increase its share in transmission and distribution funding, and REC can increase its share in generation funding. So there will be total synergy. So we will be jointly making our marks in the states where we were not able to fetch additional business.
Okay, sir. And just one question on the tax front. The tax rate has come down substantially this quarter. So is it because of the write-back as far as gains and -- I mean, what has drive the tax rate down this quarter?
We are just checking.
See, the average rate of tax coming to around 27%. And I think, which is the case in all the quarters when we make a provision of 27% only.
So full year, you expect to be around that level?
Yes, around 27% only. Because the level is 30%, then we get some benefits like a reserve for doubtful debt, et cetera. So ultimately, that the net effective tax rate is around 27% only.
Okay. And just sorry, one more question on the cost of funds side. It seems like cost of funds has done well. I mean, it has come down marginally during the quarter. I mean, any reasons for this, sir? I mean, is it because of the redemptions or something, which have driven the cost of funds lower?
See, during this quarter itself, we have repaid around INR 18,000 crores, which carries the average rate of interest of probably 8.50. And our borrowing is at much cheaper rates. So that combined together, made cost of funds come down.
All right. And sir, any guidance on the spread or margins going for this or next year?
The spread has improved to 2.68%.
In the last 2 quarters, you see that our spreads are going up. As we mentioned in our earlier concall also, we feel that 2.50%, 2.60%, we should be pushing to maintain the total spread.
The next question is from Ishank Kumar from UBS Securities.
Yes. so first question, is there any interest income reversal in interest income this quarter?
No reversal this quarter.
No reversal this quarter. Okay. And second, if you can share the number of SME II loans. Like what is the quantum of SME II loans right now?
30 to 60. 30 to 60 days.
See, as now we're working on that in this account, as I mentioned earlier, if there's any delay of more than 30 days, that is Category Stage II.
That is INR 7,000 crores?
That is INR 7,000 crores.
Okay, okay. And so there's this risk that some SEBs are delaying payment to suppliers. And also are we seeing some increase in Stage II loans in some SEBs because of this?
State power utilities?
Yes.
See, there is some delay in getting their payment, but none of the account have never become NPA so far. So I can't say, but yes, there may be some delay. But otherwise, they are regularly making a payment.
Okay. And sir, lastly, on this REC foreign currency bond, so there is an article in Financial Express today that says that government may stay as promoter of REC and PFC will buy government stake but not become promoter of REC. So can you clarify this? Can this solve the problem of like this active government control of REC?
These are only press clippings even we are not aware of. I don't know how and where they got this news.
We are aware of the cabinet decision that acquisition of REC with management control. Now you can very well understand. What does it mean? Management control. So we can't comment more on these press reports.
Okay. So sir, if there is a management control, then you think that the clause that foreign shareholders -- foreign bondholders can put the bond that will be triggered, right.
See, that's why I mentioned that the REC is already in process because either they may have to take a consent from the bondholders or they have to pay it. So they are in process of taking a consent from the bondholders. And that is only then the acquisition will take place.
Next question is from Amit Singh from B&K Securities.
Sir, I missed the initial part, sir. On the Slide #15, where we have mentioned about 6 projects of around INR 3,500 crores, which are under -- outside NCLT discussions. So sir of which one is GMR Chhattisgarh? And sir, what are the other 5 projects?
[Foreign Language] Dans Energy and Shiga Energy, Essar Transmission, RattanIndia Amravati and GMR Chhattisgarh.
Sorry, sir. Can you repeat it once again?
Dans Energy, Shiga Energy Private Limited, Essar Power Transmission, GMR Chhattisgarh, India Power Corporation Haldia.
Okay. And sir, you have also mentioned about one more project just below that thing where you have around INR 811 crores of exposure. What is that project?
GVK Ratle. It was a hydro project in J&K.
This is the same project where we mentioned that we are expecting some reversals in the next quarter.
Okay. And sir, just on this previous slide, on Slide #14, where also we have mentioned about 10 projects where application has been filed but yet not admitted. So of these, 2 projects are Lanco Amarkantak and Indiabulls Amravati. And sir, can you specify what are the other 8 projects?
RKM PowerGen. We are settling, and it has got -- this RKM PowerGen got 550-megawatt additional PPA under 200 to 2,500-megawatt pilot scheme of PPA. So we filed but -- we filed NCLT application, but it was not admitted.
Okay. And sir, there are other 7 projects as well.
KSK Mahanadi, Indiabulls Nashik, Lanco Amarkantak, Indiabulls Amravati, Shree Maheshwar Hydel, Essar Power, Jhabua, KVK Nilachal and Jal Power.
And sir, lastly, sir, we have also mentioned about 2 projects where the liquidation is filed with the NCLT but yet not admitted so the INR 1,635 crores worth of project. Which are those 2 projects, sir?
East Coast and Ind-Barath Madras.
The next question is from Kunal Shah from Edelweiss.
So firstly, in terms of the movement of GNPL during the quarter, were there any...
I'm sorry to interrupt, Mr. Shah, but we can barely hear you. Could you please speak a little louder?
Yes. Can you please highlight in terms of the movement in the GNPL? So additions and the upgradations, which have been there during in the quarter?
No new NPA has been added.
So nothing has got upgraded and nothing maybe have got added?
Yes, yes, yes.
Also, there was just the release in the provisioning coverage on upgradation, so I just wanted to check if...
See, gross NPA does come down from 9.67% to 9.47%. And this is only on account of some of the repayment which has happened in these accounts.
Okay. But there is nothing in terms of the upgrades in these strategies?
No, no.
Okay. And apart from whatever is there in Stage III, the balance starts, which are there in the private sector, say, INR 23-odd thousand crores, in the current situation, have you seen maybe stress or emerging stresses, any of them? Or maybe these are the projects wherein -- so INR 28,000 crores, there is a lot of clarity in terms of where they are in various stages of resolution and the provisioning. But what do we think about the balance INR 23,000 crores? Is there any risk which is emerging in any of this?
We don't see any problem.
Okay, okay. And thirdly, in terms of post this acquisition of REC, maybe now that both will be like under one management, so do we see any risk in terms of the gaps which would be there with respect to the exposure or maybe a particular entity-level exposure either by banks or maybe in terms of the debt market and all? And on the borrowing side, there could be some concern because now it will be a very big entity and the overall funding requirement will still be higher. So are there any risks on that front?
We don't expect any risk on these assets. Yes, of course, they have that limits, individual limits and the group limits. But still, I think we have a lot of cushions, and we don't expect any problem on that issue.
And more and more banks are coming out of PCA, so choice is also increasing.
If you see the [ AST, ] PFC and REC, they never used to borrow from the banks. Our share was very small in debt borrowing from the bank, no, which has slightly now improved, but still we have a lot of cushions.
No, but otherwise, maybe even in the debt market when we look at it since now it was like 2 different entities and maybe the limits would have been available with the subscriber to the bonds and debentures. But now with that being one single entity, don't we see maybe in terms of maybe the capacity to borrow from the debt market could also be lower?
See, we can't make any comment on debt exposure of individuals or institutions, et cetera. But if suppose the situation comes, then we have other venues also, like this time we have borrowed from Ministry of Finance also. So we have different venues we are looking into, and we'll continue to borrow.
We have borrowed from LIC. Both the companies are getting from 54EC capital gain debt bonds also, handsome amount.
Next question is from [indiscernible] from Deutsche Bank.
I have a couple of questions. I appreciate your comments earlier on Power Finance accessing various sources of funding outside of the bond market. But can you just confirm -- so when it comes to financing the REC deal, is it safe to assume that the entire amount will be borrowed byPower Finance from various sources or there will be a certain share, which you can maybe tell us which one, that you will use from internal resources, which you already have? So this is first question. And the second question is what needs to happen and when that you can announce the amount of the purchase for -- I mean, how much will you pay for RECL (sic) [REC]? And finally, when -- there were a lot of questions on the change of control by RECL (sic) [REC]. But when will RECL (sic) [REC] announce that consent from bondholders?
Okay. This deal will be funded by our internal resources and taking debt from the market. This was your first question. An amount to be paid for the deal is yet not clear. There is a high-level committee under Finance Minister of the country in which 2 other -- our power minister as well as Mr. Gadkari, Road and Transport Minister. That committee will decide in accordance with the SEBI guidelines.
They appointed valuers. We also have.
And REC has already appointed valuers, and PFC has also appointed its valuers. So when finally the decision will be taken in accordance with SEBI guidelines by that high-level committee, we will come to know the exact pricing of the deal. Regarding change of control, already REC has appointed bankers and the legal consultant. They are already working on this change of control, and they are in advanced stage of this proposal. And once we come to know, only then the deal will be closed.
Okay, I understand. In terms of the funding of transaction, you said it will be part debt, part internal resources. So how much of internal resources has Power Finance allocated to this deal?
We can't specifically give you the figures right now as we've been getting our money back from our borrowers. So part of that will be used from that -- for this funding of this transaction. And any differential one, we'll borrow. But I can't give you the exact figures.
The next question is from the line of Nilanjan Karfa from Jefferies.
Just one question. Post this acquisition of REC, will PFC be accorded a promoter -- will be considered a promoter or will not be considered as a promoter?
I think the decision of since December of Cabinet Committee on Economic Affairs clearly brings it out that it is acquisition of GoI's share in REC by PFC along with management control. What does it mean?
I don't know, sir. I mean, there are so many speculations. And therefore, the question...
We don't have any doubt on that.
Actually, whatever press keeps on writing, but we are clear in this.
So you will be accorded a promoter status, right. That's what you're...
I think so. This is...
In the case of PFC, the cabinet is very clear on long-term management control. Even otherwise, if you remember, there was a case of ONGC-HPCL, where that promoter -- management control was not there. Still, the government has given the action that the ONGC should be considered a promoter. But in our case, it is very clear right from the beginning.
The next question is from the line of Sankalp Jain from SBI Mutual Fund.
Sir, is there a clarification on the PFI status of REC?
They will continue to be PFI. Already, RBI has been informed about this by DIPAM.
Specifically for REC, sir.
Both will remain PFI.
Both will remain PFI.
Next question is from Eric Liu from Wells Fargo Securities.
Can you hear me?
Yes, yes.
Okay. So I'm sorry that my phone has been dropped during the middle sometime so far. I'm not sure whether you have answered this question. So my question is still on the Power Fin REC acquisition but more on the credit rating side. So far, you mentioned you will fund the deal by both internal capital and debt, but would you consider to raise the equity from the stock market? Because right now, to my understanding, whatever you use, the internal source of funding or using the debt will also, I mean, would -- doesn't make any difference between them. They will also reduce your capitalization ratio. And another thing is that I'm just wondering when you mentioned that you have -- I mean, the Tier 1 ratio can be mid- -- I mean, according to the RBI's guidelines, but how about the total capital ratio? Because you mentioned you also tried to raise the -- I mean, the Tier II capital, right.
See, we are not expecting any further fundraising through equity. As we mentioned, that in short term, immediate -- I said immediately. Immediately, we are not planning any increase. If suppose the situation arises later on, then we'll decide at that time only. But as I mentioned, that we are expecting sufficient cushion in our capital Tier I to take care of our business growth. So when the situation arises, we raise the equity, but right now, not immediately.
Okay. But if that is the case, like the rating agency also consider if this is a fully debt-funded deal or maybe you use the internal source of capital if you fall into the bond ratio curve, right. But how do you define it?
We have mentioned that we have been getting our funds from our borrowers, so part of that money will be used for this acquisition. Along with that, we'll raise the money from the market -- debt market, not from equity, to fund this, what our balance sheet requires.
My thought -- my concern is that because for rating agencies, they expect if this is a fully debt-funded deal. I mean, they forecast the capitalization ratio for the Power Finance if you keep the [indiscernible] trigger. But to my previous -- I mean, question, I mentioned that like if you use the internal source of capital to fund that, it makes no difference compared to you raise from the debt market because it also makes the same impact on your -- I mean, the capitalization reduction level.
See, we are not very clear that if we raise from the debt market, how it will impact my debt capital adequacy. Because the rule of capital adequacy is very clear as far as RBI guidelines are concerned. If I make an investment more than 10% of my net worth, that is to be deducted from my net worth Tier I. And after working on all these ratios, no, we feel that it will be above the regulatory requirement that is 10% and will take care of my business growth also. So I don't think that raising our [ equity ] funds is going to have any impact on my capital adequacy.
Okay. So my last question is, do you have an estimated -- I mean, postacquisition of the total capital ratio?
Exact number, we can't tell, but we will be comfortable after acquisition for our business capital adequacy will be adequate.
Next question is from Dhruv Muchhal from Motilal Oswal Securities.
Sir, my questions are answered.
The next question is from Manuj Jain from UBS Securities. Next question is from Meghna Luthra from Daiwa Capital.
Sir, just one question regarding the ILFS exposure. What will be the status of our exposure?
Exposure is okay. Actually, the ILFS appointed the agency to assess the solvency of these SPVs. And now I am happy to inform you that all our projects, which we have funded, have been found solvent. And we are being repeat regularly. There are no issues at all. Even in [ PRL ] count of wind projects, INR 175 crores is lying with us. Just to give you an idea, we have funded 2 transmission projects. One is Indo-Nepal Line, which is a joint venture of IL&FS and Power Grid. Another one is Palatana Transmission Line, which is again a joint venture of ONGC, power grid and IL&FS. We are being regularly paid because 2 transmission lines, they are exporting power. One is exporting power to Nepal; another one to Bangladesh. All other assets are wind projects, which are having PPAs, and we are being regularly paid. There is enough revenue available in PRA for making payment to us.
Okay. So the payments, so do we have an escrow mechanism? Or are they regular payments?
PRA account is managed by us, so all revenues come to PRA account. From there, we get the payments.
Due to time constraints, we'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you very much. Hope we could answer the questions to the satisfaction of our investors. Thank you very much for giving us this opportunity again. Are you there?
Yes, sir. Thank you very much.
Thank you so much once again from the management of PFC, and hope we could answer the questions to the satisfaction of all the investors.
Thank you very much. On behalf [Audio Gap]