Pipavav Defence to have debt recast in December

Apart from the debt restructuring, Pipavav Defence also has a working capital requirement of Rs 1,355 cr, which remains untied despite being sanctioned by lenders

Pipavav Defence & Offshore Engineering, the country's largest shipbuilding and heavy industry company, is expected to have its Rs 7,000 crore debt restructured by December.

"Meetings are on between the lenders and the company and a nod for a loan restructuring will come in this quarter," a banking source close to the development told Business Standard.

Apart from the debt restructuring, Pipavav Defence also has a working capital requirement of Rs 1,355 crore, which remains untied despite being sanctioned by lenders. "The ship-building environment is such that bankers are hesitant to release working capital loans sanctioned earlier," the source said. "And now with the company seeking a loan recast, bankers are delaying the release further," he added.

Pipavav Defence's debt was the same as its Rs 7,000 crore order book on September 30. The company builds naval and commercial ships and offshore infrastructure for the oil and gas industry. Nearly 50 per cent of its orders are from the military.

"Some bankers are not releasing loans because of their own inherent problems. It has nothing to do with concerns over the company's ability to repay," a source in Pipavav Defence said.

The company is bidding for defence projects cleared by the government.  India imports nearly 70 per cent of its military hardware. The government recently cleared defence projects worth Rs 80,000 crore. Pipavav Defence has bid for Rs 30,000 crore of these.

"The focus on defence and offshore orders is going to increase and 80 per cent of the order book will comprise these segments," said the company source. Pipavav Defence is also planning to foray into newer areas of defence procurement and niche shipbuilding like LNG carriers.

Over the last two years, the company's sales have stagnated and its debt-equity ratio has been rising to hit 2.26 in the year ended March.

Though the operating profit has been climbing, the interest outgo has also grown considerably. Nearly 70 per cent of the operating profit of the last two years has been eaten up by interest.

At a meeting in September Pipavav Defence's lenders had considered restructuring its debt. "The outlook on revenue is strong, what is needed is some lenient repayment options like dollarisation of a part of the loan, rescheduling of payment and such. A debt recast will jeopardise our plans," said the company source.

Pipavav Defence is also looking to raise funds through qualified institutional placement and foreign currency convertible bonds for capital expenditure on its dry docks.

"Companies refrain from getting the debt recast tag as it raises concerns over timely completion of orders," said an analyst with a local brokerage.

Pipavav Defence stock has plummeted nearly 25 per cent to Rs 39 on the BSE in the last three months.