HCC jumps on completing debt resolution plan

Hindustan Construction Company (HCC) rose 5.89% to Rs 12.94 after the company on Monday said it completed its debt resolution plan supported by 23 banks and financial institutions.

The resolution plan has carved out a significant portion of HCC's debt along with commensurate assets from its balance sheet.

Under this debt resolution plan, HCC has transferred Rs 2,854 crore of lenders' liability along with beneficial economic interest in arbitration awards & claims of Rs 6,508 crore as consideration to a Special Purpose Vehicle (SPV). This SPV will have an external investor controlling at least 51% and HCC holding balance shares. The SPV debt is significantly over-collateralised and is expected to be fully serviced from its own receivables. The underlying arbitration awards also carry interest (income), which comfortably cover any accrued interest on SPV debt.

Upon repayment of SPV liabilities, HCC will in fact have the right to receive surplus cashflows as a separate transaction, from realisation of awards and claims (expected to be of significant value).

There is no debt servicing obligation on the SPV for the next four years, and the repayments are back ended from FY27 to FY31, providing ample time to the SPV to realise cash from its overcollateralized awards and claims asset base.

This event has resolved the asset-liability mismatch faced by HCC on account of delayed realization of its arbitration awards and claims.

This carve-out will reduce the debt on HCC's books to Rs 3575 crore, resulting in a significant reduction in interest burden to the tune of around Rs 400 crore annually, besides a comfortable and back-ended principal repayment over 10 years.

This structure will allow HCC to focus on growth by increasing its liquidity and internal cash flow generation. Another source of capital for its operations and growth are HCC's various non-core assets, which will be realised at the appropriate time and will further be used for prepayment of any remaining HCC debt. The delay in implementation of this plan, partly due to COVID19, resulted in the interim freezing of the company's working capital limits for over two years, while the plan was under implementation.

HCC develops and builds infrastructure. It serves the infrastructure sectors of transportation, power, and water.

On a consolidated basis, HCC reported net loss of Rs 280.67 crore in Q1 June 2022 as against net profit of Rs 179.98 crore in Q1 June 2021. Net sales declined 9.17% to Rs 2228.92 crore in Q1 June 2022 over Q1 June 2021.

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