Lavasa may seek leeway

Hit hard by the fund crunch that resulted from a stop on the construction work at its hill city project, Lavasa Corporation is looking at various options, including a moratorium on loan repayments, to deal with the crisis at hand.

Lavasa Corporation, an arm of Hindustran Construction Corporation (HCC), which had been served a show cause notice by the Ministry of Environment and Forests (MoEF) on November 25 last year, has so far, incurred a loss of Rs 680 crore. The company fears the losses could rise further if the stop-work order continues to be in place. The company, which has already invested about Rs 3,000 crore in the first phase of the development of the project, also expects cost overruns.

A Lavasa Corporation official, on the condition of anonymity, told Business Standard, "The company has debt of about Rs 1,100 crore, and it has raised Rs 800 crore through bonds. It is exploring the option of seeking a moratorium from lenders on the repayment of loans." Besides, the company may consider pledging a portion of 12,000 acre of land. "However, this would not be considered immediately, though it would be an option to tackle the situation." Lavasa plans to purchase a total of 13,226 acres of land. The company also plans to develop a total 12,553 acres of land and has purchased 9,460 acres and entered into a memorandum of understanding for another 3,766 acres.

The official said the board would take a call on raising funds from domestic banks and financial institutions and added the expansion would depend solely on securing an environment clearance from the MoEF. The Bombay High Court has slated the next hearing in the matter for November 16.

The official ruled out an initial public offering, given the current economic situation and the fact that the company was facing criminal proceedings filed by the state pollution control board.

The company, in its draft red herring prospectus filed in September 2010, said, "The cost overruns may not be adequately compensated by contractual indemnities, which may affect our business, financial condition and operations. Any delay in completing our projects could result in dissatisfaction among customers, negative publicity and lack of confidence among investors and potential residents.

Angel Broking, in its analysis of HCC's second-quarter results, said the revenue had declined 6.3 per cent year-on-year to Rs 828.6cr, against an estimate of Rs 946.5cr, owing to a slowdown in execution. According to the management, the decline in revenue was due to the delay in granting approvals for environment clearances by the government, land acquisition problems and the overall slowdown in decision making. The infrastructure sector is also facing strong headwinds, including a slowdown in order activity, due to the shortfall in investments in the sector, increased commodity prices and a high interest rate scenario.