All for liquidity: Watch every rupee, chase dues, and refinance debt

Refinancing high-cost debt into low-cost debt is possible, thanks to the RBI's TLTROs

Raise, refinance and preserve — this is the new mantra for most companies as liquidity is the new king. From chasing receivables to cutting down on discretionary spending, companies are counting every rupee.

While refinancing existing debt with cheaper options is the preferred route, companies are also looking to cut discretionary spending, follow up on payables and invest in digitization to manage cash better.
 

The Reserve Bank of India’s Targeted Long Term Repo Operations (TLTROs) of Rs 1 trillion and then Rs 25,000 crore has made a huge borrowing window available for corporate India.
 

SBI, Bank of Baroda, Canara Bank, Bandhan Bank, Bank of India, Indian Overseas Bank, ICICI and DCB are mainly involved in lending right now.

JSW Steel, Larsen & Toubro, Tata Steel, Reliance Industries, and IRB Infrastructure are some of the companies which plan to, or have already raised, funds. (See chart).
 

In sectors such as steel, though, challenges could hamper fund raising. "JSW Steel is looking to raise funds but is finding it difficult as the market is completely aware that the outlook for the steel sector is under pressure for the coming months as demand is not expected to pick up any soon," said a person with direct knowledge of the development.
 

The person added that bankers preferred AAA rated companies over any other which is making it difficult for the Sajjan Jindal-led company to raise funds. JSW Steel executives did not respond to messages seeking their view.

“Bankers are extremely selective and giving preference to AAA rated companies or companies which have strong or reputed group as a promoter,” said a banker who did not wish to be identified.

That is why companies that are part of large conglomerates have been able to gain from the promoter’s credibility. Tata Steel, for instance, has so far managed to raise Rs 3,000 crore at an interest rate of 7.85 per cent, according to sources.

“Bankers are looking at the strong promoter backing of Tata Sons in this case and hence the company has managed to raise funds. Bankers see more comfort in Tata Sons than Tata Steel as a company,” the source added.
 

According to a CARE Ratings report on debt for April 2020, oil exploration, drilling and refining accounted for almost half of the issuance of commercial papers in April 2020.
 

The second highest issuance was seen in the power sector which witnessed 12.5 per cent of the issuances during the month.

“Most of these issuances were from the oil public sector utilities and should be seen as an attempt to manage liquidity and operation costs with cheaper options,” said Madan Sabnavis, chief economist for CARE Ratings. He added most companies across sectors prefer to refinance debt over raising fresh funds.

Suresh Chandra Jain, chief financial officer for Adani Power, in a call with analysts in April, said, “We will pursue opportunities to optimise our debt structure, when the market permits.”
 

Others, like KEC International, are also on the look-out for cheaper debt options. “Replacing high cost debt with low cost debt and optimizing overhead expenses are some of the other measures being taken for cash preservation,” said Vimal Kejirwal, CEO and MD for KEC International.
 

The company is also constantly reviewing daily spending at various levels to ensure elimination of all non-essential items as part of a cash-preservation mindset across the organisation.
 

Power producers, who are already struggling with low payments for power procured, are now resorting to chasing receivables. “We have significantly notched up our focus on liquidity management through proactive follow-up on receivables,” said Jyoti Kumar Agarwal, Director Finance, JSW Energy.

Both KEC International and JSW Energy are in discussions with lenders to raise additional funds or extend limits to enhance their liquidity position.
 

There are only a few who may find it easy to tide over the liquidity scenario. Refiners like Hindustan Petroleum Corporation (HPCL), say the fall in crude prices helps the cash management.
 

“More than 90 per cent of my expenses are linked to crude oil prices. Managing the remaining expenses to make them more cost-efficient is a regular exercise,” said M K Surana, chairman and managing director for HPCL. He added that the company so far has not needed to refinance its debt.

Adani Gas and Adani Transmission are among the few companies which plan to go ahead with their capital expenditure plans. Both companies received foreign equity investments shortly before the pandemic hit. French energy giant Total made an investment in Adani Gas, while Qatar Investment Authority invested in Adani Transmission’s Mumbai distribution business.

These investments may help them manage their cash requirements efficiently.