Infra companies face tough time as cash flow dries up

Jaypee, Essar, GMR, GVK, Lanco, Abhijeet groups' debts rise despite falling cash flows, says UBS

Global bank UBS has flagged the falling financial metrics of the Jaypee, Essar, GMR, GVK, Lanco and Abhijeet business groups and said banks had increased their exposure to them despite a deterioration in their cash flow and ability to service debt over the last few years.

A UBS report released on Tuesday said 15-20 per cent of the companies analysed were categorised as having non-performing loans or had their debt restructured. “Total loan approvals have increased by 85 per cent since 2011-12 for the banks under our coverage, including non-fund based exposure. While the strong growth could be partly driven by disbursements to already approved loans, banks also seem to be supporting some accounts, leading to a stretched working capital cycle,” the report pointed out.

The six groups identified by UBS as having stressed loans have already taken steps to reduce their debt. While Jaypee sold its cement and power plants, Essar sold its slurry pipeline and oxygen plant apart from converting local loans to dollar-denominated ones. Essar Steel plans to sell assets worth Rs 12,000 crore in 2015-16.

GMR Infrastructure is talking to its banks to take advantage of the 5/25 scheme to restructure its debt. The GVK group has put plans to develop an expensive coal mine in Australia in deep freeze while Lanco sold its Udupi power plant to the Adani group for Rs 6,000 crore. The 5/25 scheme increases the tenure of a loan to 25 years with an option to refinance the loan in five years.

GMR Group spokesperson said, “The group continue to maintain strong banking relationships with most of the leading banks. The exposures to various banks keep changing depending on  disbursement  / repayment of various loans. The group maintain a good track record and enjoys high reputation in banking sector. Presently no loan to the group is classified as NPA.”

UBS said these groups would have to sell more assets to support their interest and principal repayments. A slowing economy, ambitious projects, and land acquisition delays are the main reasons why many projects of these groups failed to take off or are stuck midway.

On GMR Infrastructure, UBS said the company’s consolidated debt had increased from Rs 21,200 crore in 2010-11 to Rs 46,000 crore in first half of 2014-15, and its debt-equity ratio had climbed from 1.9 to 5.5. Its interest coverage ratio is low at 0.7. ICICI Bank and Yes Bank have increased their exposure to the group since 2011-12.

UBS said the consolidated debt of the Hyderabad-based GVK Power and Infrastructure had increased from Rs 5,500 crore in 2010-11 to Rs 22,300 crore by 2014-15, its debt-equity ratio from 1.5 to 10.7, and as a result its interest coverage ratio was low at 0.6.

UBS analysed data for 17 companies in the GVK group, with a total exposure of Rs 11,800 crore, and said Axis Bank and Infrastructure Development Finance had the highest exposures to the group.

On Lanco, UBS said its total consolidated debt increased from Rs 16,700 crore in 2010-11 to Rs 38,000 crore in the first nine months of 2014-15, and its debt-equity ratio had risen from 3.3 to 14.1 to over the period. Its cash interest coverage ratio is also low at 0.8. But with the sale of its Udupi plant, Lanco will be able to reduce its debt to around Rs 32,000 crore.

UBS analysed data for eight companies in the Lanco group with a total exposure of Rs 26,100 crore and found Punjab National Bank, ICICI Bank and REC had the highest exposures.

UBS also analysed 11 Essar group companies, excluding Essar Oil and Essar Power (Salaya), and said ICICI Bank, State Bank of India and Punjab National Bank had large exposures. The total debt of the group is Rs 93,600 crore, up from Rs 75,800 crore a year ago. A senior Essar executive said the group had taken steps to cut its debt, including a plan to sell a 49 per cent stake in Essar Oil and its ports.

On Jaypee, UBS said ICICI Bank, State Bank of India, Axis BAnk and Yes Bank had increased their loan approvals by 250 per cent in the last three years even as the group’s debt rose to an alarming Rs 96,200 crore. The group sold its power plants to the JSW Group for Rs 12,000 crore in 2014-15 and its cement units in Gujarat and Madhya Pradesh to Ultratech. UBS said it analysed data of the banks’ filings with the Registrar of Companies. But it said these documents might not accurately represent the actual loan exposure of banks to companies as they do not capture partial repayments or undisbursed money and include non-fund based facilities. UBS adjusted the data for repayments wherever information was available.