INFRA COMPANIES & THEIR DEBT - GETTING UNCOMFORTABLE
By Ruma Dubey
Infra companies, which were the darling of the bourse a year or two ago, seems to have broken too many hearts and seems to have run into trouble itself. After announcing and getting into huge, sometimes, unrelated mega projects, the sheer weight of the debt seems to have kept these companies aground.
Most of the top rung infra companies are today sitting on huge debt. The highest debt probably is of JP Associates, which at the end of FY12, had a debt of Rs.43,900 crore. GMR Infra, which ended FY12 with a net loss, is sitting on long term debts to the tune of Rs.32,682 crore. This is amongst the biggest debt in the sector. Lanco Infra comes close on its heels, with debt bill at Rs.28,036 crore and it too had ended FY12 in the red. Adani Power is sitting on a debt mound of Rs.24,503 crore and not surprisingly, had ended FY12 with a net loss.
Making matters worse, along with the debt is the increasing cycle of working cycle which only goes on to compound matters further. Many are blaming this high debt on the BOT (Build, Operate and Transfer) mode of operations. For eg: HCC has a consolidated debt of Rs.7336 crore and its working capital days at the end of March, 2012, was 320 days v/s 287 days in FY11. And a major chunk of its project is in BOT. Lavasa debt is placed at Rs.3300 crore. It completed two of its three BOT projects and both were in the red at the end of FY12. The stock was hit badly yesterday after RBI rejected its request to confer infrastructure status on its loans. This rejection puts in jeopardy its proposed CDR plan and the company might now have to take the difficult road of negotiating individually with the banks and its debt will not have any chance of becoming a standard asset. Lavasa's loans would have been converted into a standard asset in the CDR if the RBI had agreed to the move. The company plans to see non-core assets to raise money to retire some debt but does it have enough non-core assets in the first place?
Take the case of IVRCL. At the end of FY12, it was sitting on consolidated debt of Rs.4000 crore and it recently merged the BOT arm - IVRCL Assets & Holdings, which the company hopes will lead to an increase in net leverage. But rating agency, Fitch has already voiced its doubts and downgraded its short-term facilities.
NCC is another company which is sitting on a consolidated debt of Rs.5018 crore as at 31st March 2012 and five BOT projects account for around Rs.1000 crore debt. Suzlon Energy has a debt of Rs.10,948 crore and it’s situation is currently precarious as it has to raise Rs.2000 crore before 27th July, the deadline for the maturity of its FCCBs. Of its total debt, 60% is working capital loans and in this fiscal, it needs to repay Rs.3920 crore,
Most of these companies are today resorting to various ways and means to reduce debt – selling non-core assets, selling stake and getting PE investors. Suzlon recently sold its wind energy assets in China, raising around $60 million. JP Associates plans to sell stake in its cement plants in Gujarat and Andhra Pradesh. Reportedly Aditya Birla group has emerged as the front runner and has valued the stake at Rs.5700 crore. Lanco Infratech is planning to sell its road and hydro power business and IVRCL is looking to sell a part of its BOT asset.
Capital intensive infra companies are currently caught in a bind. The interest rates will take a while to come down and till then, as deadlines loom, they will have to look at means to raise money. But the big question is – will PE funds find infra companies, valued much lower than two years ago, attractive enough to buy into? Infra companies have been on the downward cycle for too long now and before end of FY13, the tide will turn for the better for these companies. For PE funds to start buying into stakes of these companies the policy paralysis has to be cured and confidence needs to be restored that projects will take off. Right now there is fear of getting stuck for a long time in projects which are going nowhere. Infra companies desperately need funds and circumstances have today humbled the promoters, making valuations attractive. Will PE funds bite?