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HCC spurts after lenders initiate Rs 2,100 cr debt-asset carve-out

Capital Market 

Hindustan Construction Company (HCC) jumped 6.87% to Rs 11.04 after the company said its lenders have initiated a carve-out of about Rs 2,100 crore of debt to a third-party-controlled special purpose vehicle (SPV).

Lenders of HCC on Friday, 10 January 2020, initiated a carve-out of about Rs 2,100 crore of debt to a third-party-controlled SPV along with certain arbitration awards and claims in a move that will significantly de-leverage the company and address its asset-liability mismatch, the company said in a release.

The debt, along with receivables comprising approximately an award cover of 1.0x and Claims under arbitration of 1.5x, will move to an SPV controlled by a new investor, the company said.

The tenure of the debt at the SPV will be up to 10 years and repayments from the proceeds of the awards will yield an internal rate of return higher than current yields offered by HCC, it said.

The company said debt-asset carve-out, which will be in the nature of a slump sale, is subject to lenders' final approvals.

Lenders aim to seek their internal approvals and target to close the transaction prior to 31 March 2020. The company said it will also seek the requisite corporate approvals for the transaction.

The firm said on 26 March 2019, the company's board of directors had approved the monetisation of certain awards and claims through an SPV controlled by investors led by BlackRock, which was notified to the exchanges.

Subsequently, shareholders' approval was taken to transfer awards and claims amounting to Rs 2,082 crore in exchange for a cash consideration of Rs 1,750 crore, it said.

HCC said it is still engaged in discussions with investors and a curtailed monetisation transaction with an investor-led consortium, subject to lenders' approvals, may also be pursued at a later stage.

As a result of the above developments, there may be a write-back, subject to statutory audit, of the provision taken in 4Q FYI9 on signing of terms of the monetisation transaction, it said.

Pursuant to the debt carve-out, HCC's balance sheet will stand significantly deleveraged with no debt servicing obligations expected for the next 33 months, it said adding that HCC will continue to work to realise its underlying assets to further improve its credit profile.

On the technical front, the HCC stock's RSI (relative strength index) stood at 58.434. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30.

The stock was trading above its 50-day moving average (DMA) placed at Rs 10.02 and its 200-day moving average (DMA) placed at Rs 10.70, both of which would serve as a support levels in the near term.

On a consolidated basis, HCC's reported net loss of Rs 233.71 crore in Q2 September 2019 compared with net profit of Rs 331.93 crore in Q2 September 2018. Net sales fell 6% to Rs 2,286.76 crore in Q2 September 2019 over Q2 September 2018.

HCC is engaged in engineering and construction activities. The company's segments include engineering and construction, infrastructure, real estate, comprehensive urban development and management, and others. The firm provides engineering and construction services for projects across sectors, such as power, transportation, water and industrial projects.

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, January 13 2020. 12:18 IST