Gammon gets a lifeline from lenders

Company to seek shareholders' nod to increase share capital 82 times

As part of a package that involved restructuring debt of about Rs 15,000 crore, Gammon India on Wednesday said it would seek shareholders' nod to increase the company's authorised share capital 82 times - from Rs 176 crore to Rs 15,047 crore.

The corporate debt restructuring (CDR) package with lenders involves restructuring fund-based (inclusive of short-term and long-term) loans worth Rs 3,374 crore, as well as non-fund based limits equivalent to Rs 10,400 crore sanctioned earlier.

Debt conversion
On Monday, the company informed the stock exchanges it proposed to obtain shareholders' nod "to provide for conversion of restructured debts of the company, aggregating Rs 14,814 crore, into equity shares". However, this is more of an enabling provision to allow lenders to take control, in case the company isn't able to meet its commitments after the CDR package is approved.

PROJECTS UNDERTAKEN

• Rajahmundry Expressway Limited
  Project cost: Rs 256 crore
• Mumbai Nasik Expressway Limited
  Project cost: Rs 927.18 crore
• Signature Bridge
  Project cost: Rs 631.81 crore
• Chennai Metro Rail Project
  Project cost: Rs 1,747.61 crore

The troubled company went into CDR in June this year. While 340 million shares, worth Rs 930 crore, can be issued any time during the implementation of the CDR package, another 1.34 billion shares, worth Rs 3,634 crore, may be issued to CDR lenders on a preferential basis, on conversion of only balance fund-based facilities, in the event of default and/or any amount outstanding beyond seven years from the date of the CDR.

Borrowing
Lenders will be issued shares of the company at Rs 27 apiece, a 107 per cent premium to its closing share price of Rs 13.32 apiece on the BSE exchange on Wednesday.

The company will also seek approval from shareholders to "authorise the board of directors to borrow in excess of the aggregate of the paid-up capital and free reserves of the company up to Rs 17,000 crore," Gammon said.

As of September-end, promoters had a stake of 35 per cent in Gammon India.

Recessionary trends
As is the case with many infrastructure companies, Gammon India faced woes last year due to factors such as declining revenues, worsening profitability, rising interest costs and debt, and delayed receivables from its clients, as the industry, along with the entire country, recorded an economic downturn.

"The construction industry has been facing severe recessionary trends. A decelerated economy, slower industrial growth and delays in large public sector projects caused delays wherein profitability of certain projects eroded on increased costs. Though the company was able to ward off the impact immediately due to a good order book position, the elongated recessionary pressures for last two years affected the company, which led to reduction in turnover and negative growth in net profit," Gammon said in its annual report.

The company's working capital cycle also stretched. And, government inaction, as well as delays in awarding projects, led to delays in project progress. This resulted in cost overruns and idle manpower and equipment, Gammon said.