Economic growth hit a decadal low of sub-5 per cent in the last two years dragging infrastructure investment down to `5,34,645 crore—the lowest since 2010-11.
Fund crunch, policy paralysis, delays in project implementation, shortage of raw material like coal and gas and inflation have de-railed projects leaving companies with reducing cash-flows and mounting debt.
“We are finding it difficult to survive. The sector is hit by multiple issues,” says T Adi Babu, CFO, Lanco, which is staring at a consolidated debt of `35,000 crore. Adds Issac George, CFO, GVK Group, “It’s (debt pile) a matter of concern. Currently, several power plants are stranded and unless the government ensures fuel supply, the viability of these projects is unknown.” Power business has been a drag on the company and revenues plunged 78 per cent from `1,666.31 crore in 2011-12 to `366.98 crore in 2013-14.
“The new government proposed to pool gas, which could help up to 40 per cent of the plant load factor, but that’s also taking its own time,” says George. GVK’s consolidated debt stands at `22,000 crore.
In fact, all the large infra firms are saddled with a five-digit debt figure. While Adani’s consolidated debt is about `65,000 crore, GMR has `40,000 crore, JP Associates `28,000 crore and L&T nearly `70,000 crore.
Delays in project execution bleeds revenues for companies, who are battling rising borrowing costs and increasing liabilities. To trim debt, infra players have been doing three things—restructuring debt, raising capital or/and selling assets. “But in the new year, we hope the government will take concrete measures to kickstart projects and spur investor appetite,” says Babu.
As of September 2014, 26 companies have knocked at the doors of the Corporate Debt Restructuring (CDR) cell to restructure `2,62,360 crore worth of debt. These companies together account for a lion’s share (20.19 per cent) of the total debt under restructuring with the CDR cell.
“It’s difficult to service debt when projects are stalled for several reasons. Companies are unable to raise capital from the market or from foreign investors due to a lack of investor appetite. Restructuring the debt will give us some reprieve,” says M Goutham Reddy, MD, Ramky Infrastructure, which last week proposed to restructure `1,400 crore worth of debt with nine lenders and SBI as the lead bank.
The government, on its part, has doubled the planned expenditure on infrastructure from `20.5 lakh crore during the 11th Plan to `41 lakh crore in the 12th Plan. Of this, more than `13 lakh crore was earmarked for FY13 and FY14. Half of this was to come in the form of budgetary support, while the remaining through private debt and equity. “But this (government expenditure) didn’t happen as it should. As a result, cash-flows were affected.
And with rupee appreciating against the dollar by nearly 25 per cent, coupled with steep interest rates and stiff inflation, our woes only worsened,” says Babu. Lanco’s interest outgo alone is about `200 crore per quarter. “Since we are not earning that much (due to lack of project execution), interest is funded from the term loan,” says Babu. Last December, 25 lenders infused `2,500 crore term loan and restructured `7,300 crore debt.
Recently, the RBI asked banks to extend long-term loans (typically 12-14 years) for as long as 25 years. This, infra companies say, essentially gives a push for banks to correct their asset-liability mismatch, but also helps companies to stretch their credit lines. Similarly, the government’s proposal allowing companies to completely exit from road projects (currently they can exit only by 74 per cent) in two years, is expected to prompt players to offload stake for better balance sheets.
Meanwhile, to retire a part of their staggering debt and stay afloat, the companies which lay low in 2012-13 are hitting capital markets raising funds via qualified institutional placements (QIPs). In July, GMR and JP Associates, between them, raised nearly `3,600 crore via QIPs, with fresh shares being issued to premium investors. GMR also said it would consider listing its power and airports business, the proceeds of which could help it pare debt.
But not all are convinced that investor sentiment has improved. “We will raise capital through QIP or/and list our airports business. But we feel the investor appetite for infrastructure stocks is still weak. We will wait for the right time; may be until next fiscal,” says George adding, “We feel the response for the recent QIPs including GMR’s was lukewarm.” GVK however, has the board’s approval and the documentation in place to raise up to `1,000 crore via QIP.
According to R Balarami Reddy, executive director, Finance & Group CFO, IVRCL Ltd, investors have become conservative. The company knows it well. In late 2012, the company had put all its nine Build-Operate-Transfer (BOT) projects up for sale but signed a pact to sell only three highway projects to Tata Group’s TRIL Roads Pvt Ltd for `2,200 crore a year later. It continues to scout for potential buyers for other projects.
In fact, almost all infra players are on the lookout for buyers or strategic investors.
“We have put all road projects on the block and will not hesitate to offload other assets given the right valuation,” says GVK’s George adding, “Or for that matter, if there’s a buyer to acquire stake at the holding company level, we will not shy away.”
Concedes Ramky’s Reddy, “We have nine BOT projects, including five road projects. We are exploring, but nothing reached a definitive agreement.”
While struggling to find a way out of the fiscal mess, companies have taken a conscious decision not to compound their troubles. “We will not bid for new projects until our current order book of more than `20,000 crore is clean,” says Balarami Reddy. GVK’s George agrees, “We are staying out of new projects for now.” According to Lanco’s Babu, 2015-16 will be a year of consolidation and if the government kickstarts growth, there will be healthy competition. Watch this space.
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