Gammon sells EPC biz to Thailand's GP Group

Rs 250-cr deal to be completed in a year

Gammon India has sold its civil engineering, procurement and construction (EPC) business to Thailand's GP Group, headed by Kirit Shah, in a Rs 250-crore deal. GP will invest in tranches of Rs 26 crore and Rs 224 crore into Gammon Retail Infra Pvt Ltd, the group's EPC arm, and reconstitute the latter's board of directors. The deal is expected to be completed in 12 months.

In December last year, Gammon India had informed the stock exchanges that its lenders would convert Rs 245 crore of debt to a 60.1 per cent equity stake under the Strategic Debt Restructuring norms.  The company has been restructuring its nearly Rs 15,000 crore of debt through the corporate debt restructuring mechanism since September 2013.

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As part of the package, Gammon’s 19-lender consortium agreed to divide the company into three parts  — power transmission and distribution, the EPC unit  and all residual businesses.

The current market capitalisation is Rs 477 crore. The promoters’ holding stood at 13.07 per cent; institutions and non-institutions held 67.5 and 19.4 per cent, respectively. The stock closed on Monday at Rs 13.56 on the BSE exchange, up 3.8 per cent.

The company's board has also approved divestment of up to 30 per cent of its share holding (56 per cent) in Gammon Infrastructure Projects, held through a wholly owned subsidiary, Gammon Power. The said shares have been pledged with lenders as security for the financial facilities extended by ICICI and IDBI Bank. The company will use the sale proceeds to repay both these banks.

The company expects the completion of sale or disposal within six to 12 months.

In October 2014, rating agency CARE had downgraded Gammon’s loans (Rs 11,304 crore) and debentures (Rs 324 crore) to ‘D’, a default grade, from ‘C’. This was after delays in servicing of interest on non-convertible debentures and overdrawals in fund-based limits.  

Liquidity was constrained by delays in recoveries from customers and project delays, resulting in high inventory.  It blocked working capital funds and there were cost-overruns.