GSPC to restructure business to improve credit profile

The Gujarat State Petroleum Corporation Limited (GSPC) is restructuring its business to improve its credit profile. According to the scheme, GSPC will hive-off its participating interest in the Krishna-Godavari Deen Dayal West (KG-DDW) block and its related assets and liabilities to GSPC Offshore.

The remainder of GSPC's businesses (including exploration and production blocks other than KG-DDW, gas trading, wind power generation, and investments in subsidiaries and associates) will be amalgamated into GSPC Energy. The scheme is subject to approval by lenders, the Gujarat High Court, other relevant regulators, and is to be completed by March.

GSPC's debt of nearly Rs 20,000 crore as on December 31, 2015, is to be split between GSPC Offshore and GSPC Energy, based on the security offered to lenders. This means GSPC Energy will have a debt of Rs 10,000-11,000 crore, against expected earnings before interest, tax, depreciation and amortisation of Rs 700-800 crore in 2015-16. GSPC Offshore will have a debt of Rs 9,000-10,000 crore. Rating firm Crisil has downgraded GSPC's ratings on bank facilities and debt instruments. The downgrade reflects Crisil's belief that GSPC's cash accruals over the medium term will be lower than expected.

"Further delay in commencement of operations in GSPC's KG-DDW block, and lower margin in gas trading may constrain cash accrual in 2015-16 (refers to financial year April 1 to March 31)," Crisil said.

The ratings have also been placed on Rating Watch with Negative Implications, Crisil said.

"The delay in commencement of gas production from KG-DDW, fall in gas prices, and sizeable debt have considerably weakened GSPC's credit risk profile. GSPC is taking steps, including the business restructuring, to arrest the deterioration in credit profile," Crisil added.

In 2014-15, GSPC reported a net profit of Rs 23.7 crore on net sales of Rs 10,960 crore, against a net profit of Rs 35.5 crore on net sales of Rs 11,930 crore in 2013-14.