A long road to recovery for IVRCL

Company's promoters hope for some external factors to come to the firm's rescue such as recovering at least a part of the Rs 6,000 crore stuck in disputes and possible improvement of market sentiment.

Things turned grim when the order book lost its relevance in improving the revenue position for Hyderabad-based construction company IVRCL, despite a moratorium extended on repayment of loans by the lenders' consortium one-and-half-years ago.

By the time the consortium of 20 lenders led by IDBI Bank decided to take the next logical step of invoking the strategic debt restructuring (SDR) in November 2015, the company's promoters were hoping for some external factors to come to the firm's rescue.

These include recovery of at least a part of the Rs 6,000-crore money claims that were stuck in disputes involving various government projects, possibly on the back of the new arbitration law and a possible improvement of market sentiment, so that they can dispose of or use some assets to bring fresh liquidity into the system.

"The situation is expected to improve by FY16... The steps taken by the company for improving the operational parameters wherever feasible would show signs of improvement," the company management said immediately after the lenders approved the corporate debt restructuring (CDR) in June 2014. The lenders had approved a CDR package of Rs 7,350 crore for IVRCL after it had approached the banks for a relief in payment terms. The company was not in a position to repay the debt, as it started generating losses since 2012-13.

Neither was this optimism proved right nor were any new avenues of improving the cash-flow situation in sight for the company. The firm's financial health got further deteriorated with a widened net loss of Rs 305 crore in the second quarter ended September 2015. It was too late and too little with regard to asset sale efforts, as the company was able to enter into a fresh sale agreement to divest its equity in three road projects to Tata Realty for a loss in the following month.

During the quarter, revenue remained flat at Rs 604 crore, while the costs rose steeply. The Joint Lenders' Forum held a meeting on November 26, 2015, and decided to go for the SDR, as the financial results strengthened a case for such a move.

"At the Joint Lenders' Forum, it was also decided that a senior lenders meeting would be held to decide the way forward," the company informed the stock exchanges on December 1, 2015. In January, the extraordinary general meeting (EGM) of the company adopted the enabling resolutions for raising the lenders' shareholding to 50 per cent or more in the company. Now, it was the lenders' turn to go through the process of raising their combined equity to 51 per cent to replace the existing promoter, which is a prerequisite to find a new buyer or an investor for the company.

This process might take between three and 18 months, depending on the number of consortium members because every member has to be taken on board for any decision, according to experts. This raises the question as to what would happen to IVRCL's financials during this crucial transition period, even as the firm's Chairman and Managing Director E Sudhir Reddy said last month the management would support and operate the company on a day-to-day basis. Compared with Rs 3,117 crore revenue for the full financial year 2014-15, the company was able to earn Rs 1,261 crore, less than 50 per cent of this in the first half of the current year. This raises the possibility of the company closing the financial year with lower revenue than the previous year. This will further widen the gap between the performance and the debt servicing requirement of the company, which is already sitting on a debt of Rs 10,000 crore on top of an accumulated net loss of close to Rs 2,000 crore by the end of the second quarter.

One of the senior management officials of the company had earlier told Business Standard they required to have revenue between Rs 5,000 and Rs 6,000 crore to come out of the present mess, whereas the lack of liquidity was pulling them back from working in that direction. The demerger of the company's engineering, procurement and construction and property businesses was the last proposal put forward by the present management and it was endorsed by the board after the SDR decision.

While the lenders will have an option to look for an investor or a buyer for an individual project or for the whole of the company depending on the situation, they need to first work out a comprehensive turnaround plan before exercising these options, say experts. But, whether the lenders would be able to achieve what the existing management could not do or whether they would be able to find a buyer to secure their interests remain to be answered.

"It is difficult to make an assumption about a particular company. In general, the debt servicing requirement should be matched with the revenue profile of the company or of the project. If it is only a matter of extending the term of the loan, investors will come," Manish Agarwal, leader, capital projects and infrastructure at PwC India told Business Standard.

The company was unavailable for comment when contacted.