Jaiprakash Power likely to default on $200 mn convertible bonds

But says it should be able to pay its dues by 31 March, 2016

Jaiprakash Power Ventures Ltd said it was likely to default on payments for convertible bonds worth $200 million due on February 13 because it could not generate enough revenue from its operations.

Jaiprakash, weighed down by debt and a sharp downturn in the performance of the Indian power sector, said in a statement on Wednesday it was confident of its ability to pay its dues under the bonds by March 31, 2016.

The default, if it happens, will be the first major one on convertible bonds by an Indian company since wind energy, turbine maker Suzlon failed to meet its repayment obligations in 2012.

Many Indian companies have struggled to meet convertible bonds payment obligations in the past couple of years due to a sharp plunge in share prices, feeble earnings growth and a weaker rupee.

Jaiprakash Power raised $200 million through convertible bonds in 2010. The conversion price of the paper, due next month, was fixed at Rs 85.81 a share, according to Thomson Reuters data.

Shares in Jaiprakash were trading at Rs 11.90 on Wednesday, making conversion impossible for bondholders and leaving the company needing to raise fresh funds to repay the investors.

Jaiprakash, which has been selling hydroelectric plants to raise cash, said its power business had been “severely impacted” by various reasons beyond its control, including a court decision in September to cancel coal blocks that had been allocated to the company.

Its difficulties highlight the wider problems facing India’s infrastructure sector, where companies say they are too indebted to start a new cycle of capital expenditure on roads, power plants and airports that the government has deemed vital to an economic recovery.

Jaiprakash said in the statement on Wednesday it had called a meeting with the convertible bondholders to discuss a repayment schedule.

The firm has total outstanding debt of $2.7 billion, according to Thomson Reuters data.

“The company is of the view that while the conditions surrounding the recovery of Indian infrastructure and power sector have improved, recovery remains a work-in-progress,” it said.