HCC first to get debt relief under new RBI scheme

Lenders to decide on converting loans into equity/debentures in 3 months

Hindustan Construction Company (HCC) has become the first firm to get relief under the Reserve Bank of India’s Scheme for Sustainable Structuring of Stressed Assets (S4A) for its Rs 4,900-crore debt.

According to the scheme, banks can convert half the company’s loans into equity/redeemable optionally convertible preference shares or optionally convertible debentures in the next 90 days. The rest will be serviced according to present terms and conditions.

“The  scheme will help the company tide over the cash flow mismatch, which arose mainly because of delay from the government’s agencies to release our dues,” chairman of HCC, Ajit Gulabchand, said in an interview with Business Standard. “We are witnessing green shoots of growth because of increased government orders and with this scheme, which would reduce our interest costs, our cash flows will improve,” Gulabchand said. The company’s order book has grown 35 per cent in the past 15 months, he said.

The Joint Lenders’ Forum meeting of HCC was held on Tuesday and it cleared the account following a recommendation by consulting firm EY, appointed by the lenders.     

A call on when and how to convert the loans into equity/debentures will be taken in the next 90 days. The interest on debentures can be paid at the end of the tenure, which could help interest costs fall by half on unsustainable debt. The promoters currently have 36 per cent stake in the company.

Under the S4A scheme introduced by the RBI in June this year, the debt of the company will be bifurcated into two parts—sustainable debt, which cannot be less than 50 per cent of existing debt and will have to be serviced based on the same terms as that of existing facilities. The other unsustainable part of the loan can be converted into equity/redeemable optionally convertible preference share/optionally convertible debentures, with clearly spelt out terms. An overseeing committee will vet the processes followed by bankers while using the S4A scheme.  Gulabchand said HCC fell into hard times following a slowdown in the infrastructure sector and delay in payment of its dues by government agencies of arbitration awards amounting to Rs 3,000 crore.

In the past couple of years, HCC took up recovery of Rs 11,000 crore dues crore from government agencies. Of this, HCC received arbitration awards in its favour worth Rs 3,041 crore as of March. However, payment still remains a challenge as only Rs 373 crore could be collected as clients have appealed to higher courts, Gulabchand said.  In the past 10 quarters, HCC has emerged as one of the best performing companies in the infrastructure sector with Ebitda (earnings before interest, tax, depreciation and amortisation) margins of 16-18 per cent through a series of initiatives aimed at improving operational efficiencies, cost rationalisation, strict adherence of dispute resolution process and monetisation of assets.  HCC, which went in for CDR (corporate debt restructuring) in January 2012, has made efforts to remain standard with banks, even as other companies referred to CDR failed to take off and had to exit.

HCC’s stock closed marginally down at Rs 24 a share on the BSE on Wednesday.