Bankers choose CDR route to restructure Pipavav Defence debt

Lenders to finalise terms and conditions by end-February; however, firm says it is also keen on capex for expansion

Lenders to Pipavav Defence & Offshore Engineering, the country’s largest shipbuilding and heavy industry company, have chosen the corporate debt restructuring (CDR) route to restructure its debt of close to Rs 7,000 crore, two banking sources told Business Standard.

Led by IDBI, the bankers will discuss terms and conditions of the CDR package early next week. “We plan to have the terms finalised by end-February. The steering committee, comprising seven-eight major banks, will have for the first meeting on Monday or Tuesday to discuss the terms under CDR,” said one of the sources.

Pipavav builds naval and commercial ships, and offshore infrastructure for the oil and gas industry. Nearly half its orders come from the military. The government in November cleared defence projects worth Rs 80,000 crore and Pipavav has bid for Rs 30,000 crore of these.

In September, at a joint lenders’ forum, where the company was asked to make a presentation, the latter had suggested restructuring of its debt outside the CDR mechanism. For, it explained, the company had plans to raise funds from the market for expansion and the CDR tag would jeopardise the plan. Companies usually refrain from getting the CDR tag, as it raises concern over timely completion of orders.

“Under the CDR package, rules are more stringent, with promoters contributing 25 per cent. But under the joint lenders forum, there is a chance for some relaxation,” said the other banking source.

Among peers, Bharati Shipyard has failed to get out of CDR, while ABG Shipyard saw its Rs 11,000-crore debt get approved under a CDR package in March last year.

“We are going ahead with expansion plans and are currently evaluating funding options,” said a source from Pipavav Defence, without divulging details regarding the capital expenditure needed.

Pipavav was planning to raise funds through qualified institutional placement and foreign currency convertible bonds for capital expenditure on its dry docks. “We will have a better idea by end-February or first week of March. Once we have decided the funding option, we can carry out the expansion in parts,” added the source.

Over the past two years, sales have stagnated and the debt-equity ratio has been rising, to hit 2.26 in the year ended March. Though operating profit has been climbing, the interest outgo has grown considerably. Nearly 70 per cent of the operating profit of the past two years was eaten by interest.

“Our expansion plans and restructuring of debt are mutually exclusive and so, we do not have any reason to scrap expansion. We will rationalise the whole thing,” said the Pipavav source.