HCC offers assets on block to enter CDR

Bankers view deal favourably, as Gulabchand is willing to liquidate land bank and road projects

A consortium of 27 banks will soon decide on Hindustan Construction Company’s request to be allowed to restructure its loans, under the corporate debt restructuring (CDR) process.

Ajit Gulabchand, chairman and managing director, has tried hard to convince the banks. In a meeting last week, he offered to liquidate the company’s land banks in the Vikhroli (Mumbai) and Pune areas. He also offered to sell five road projects over time and has even put two helicopters on the block. Reports suggested HCC could also be looking at selling its Mumbai headquarters premises, valued at almost Rs 1,000 crore.

According to banking industry sources, Gulabchand’s proposal is likely to find favour, as banks are faced with a slew of bad loans. “HCC is servicing the loans at an average of 12.5-13 per cent. If the company goes into CDR, it may get rates of around 11 per cent,” said a banker, adding a stake sale in Lavasa, the controversial (and long-stalled) hill city project near Pune was also likely.

When asked, Gulabchand refused to comment on the restructuring. A senior State Bank of India official said both the parent (HCC) and its subsidiary, Lavasa Corporation, were being referred to the CDR forum. While HCC is hit by delays in payments for finished projects and a high interest burden, in the case of Lavasa there is delay in payment of both principal and interest on term loans. As of the third quarter, the company had overall debt of Rs 8,000 crore. Of this, loans of Rs 4,100 crore were taken by HCC for the road projects and another Rs 3,000 crore for Lavasa Corp. The company has drawn another Rs 900 crore from its existing credit line of another Rs 3,000 crore, said banking sources.

With the Lavasa project stuck due to environmental issues and the road projects in a limbo, the company has not been able to generate cash flows for some time. It has met the bankers in the consortium as well as separately to convince them. Last week, the company sent a statement to the Bombay Stock Exchange that its board of directors had decided it should apply for CDR.

It is unclear who’d be the lead banker for a CDR. Banking officials said it could be either State Bank of India or ICICI Bank. The company has been under a rating watch since February last year. CARE had done so on the loans and financial instruments of HCC after the Lavasa project was hit by environmental clearance hurdles. It has seen two rating downgrades since.

At the time of announcing the third quarter results, Gulabchand had said the financial performance reflected a difficult economic and business environment. Revenue growth was lower due to slow order booking during the past four quarters, execution bottlenecks, rising interest cost and payment delays by clients. In this environment, the company was focused on judicious use of capital and improving collections/claims and reduction in cost. Initiatives targeted in these areas had already resulted in improvement, the HCC chief added.

The company had posted a net loss of Rs 130.4 crore in October-December, as against profit of Rs 7.9 crore in the same period last year. CARE also downgraded the banking facilities of Lavasa to a default grade rating.