IVRCL likely to consider demerger plan in next board meeting

The infrastructure company IVRCL Limited is likely to hold a board meeting next week to discuss the possible demerger of property development and EPC business into a separate entity as it seeks to restructure its business operations for improving revenue prospects.

The idea behind the move was that the investors would come forward to partner with new business activities in this space as the company was known for its execution capabilities in areas of property development and EPC projects, according to sources close to the development.

It may be recalled that the company had merged its property development entity IVRCL Assets and Holdings Limited, which was operating in construction sector since 1996, in the year 2012.

Prior to this merger the company's consolidated revenues stood at Rs 5,600 crore in 2011-12 before beginning to dwindle in the light of slow down in investments in the infrastructure space, delays in road projects among other reasons.

Last year the lenders consortium had approved a debt restructuring package of Rs 7,350 crore for IVRCL as the company was unable to repay debt after it fell into losses in the subsequent years. The quarterly net loss of the company widened to Rs 305 crore in the second quarter ending September, 2015 as the revenues continued to be flat.

"The company's operations, execution of projects got adversely affected due to unavailability of liquid fund and resulted in lower turnover," IVRCL management said in the company's annual report.

According to sources, the IVRCL management has already conveyed its proposal for demerger to its lenders, who together hold 43 per cent equity in the company. They are expected to make their stand known to the company next week. A decision in this regard would largely depend on the lenders' consent as they hold the substantial stake in the company while the promoters' group has a little less than 9 per cent holding.

The board of directors was expected to take a final decision depending on the lenders' approval for the proposed mover. Internally the company management was understood to have come to a conclusion to approach the high court with an application seeking the demerger.

According to a general view, demerger is a form of corporate restructuring. Increasing the role of spcialisation in a particular segment is one of the prime reasons why large corporates would go in for a demerger.