Construction major HCC defaults on debt worth Rs 2,161 crore

Company has total dues of Rs 9,727 crore, Rs 4,091 crore of them to Indian banks

Construction major Hindustan Construction Company has defaulted to Rs 2,161 crore of debt as on December last year even as the company’s lenders have initiated a comprehensive debt resolution plan.

The company has a total debt of Rs 9,727 crore and of this, it owes Rs 4,091 crore to Indian banks, the company said in a statement to the stock exchanges. The company’s debt servicing capability was hit due to delays in execution of orders resulting in lower revenues. It was also impacted by high cost debt and high interest outflow, which led to the company incurring net losses continuously.

For the September quarter, the company made a loss of Rs 159 crore on revenues of Rs 932 crore, according to the disclosures made to the BSE. The net-worth of HCC has significantly eroded from Rs 1,353 crore as on March 2019 to Rs 611 crore as on March 31, 2021.

In December last week, Indian lenders had cleared a proposal by Darwin Platform group to acquire HCC’s subsidiary, Lavasa Corporation, a hill city near Pune, with a bid of Rs 1,800 crore. Lavasa was sent to the NCLT by Indian banks for debt resolution under the insolvency and bankruptcy code after the company defaulted on Rs 8,000 crore loan.

Banking sources said HCC, like most infrastructure sector companies, fell into bad times after several government agencies delayed payments for completed projects. The Covid pandemic and the lockdowns further delayed commissioning of projects.

In December 2019, the company started a settlement process with the National Highways Authority of India (NHAI) to settle previous awards and claims by the company. Besides providing upfront liquidity to the company, the intention was to reduce high litigation costs and release the bank guarantees provided to the court. As part of these settlement agreements, HCC received Rs 1,849 crore.

According to the debt resolution plan agreed with its lenders, HCC plans to transfer the economic/beneficial interest in specified awards of up to Rs 2,749 crore and claims of up to Rs 2,136 crore, to a special purpose vehicle called — Prolific Resolution Pvt Ltd. The final amount of debt, along with the economic/beneficial interest in awards and claims to be assigned will depend on when precisely the resolution plan will close, as the debt amount to be carved out will include all over dues till the date of implementation of plan. The company will then sell up to 51 per cent of its stake in the SPV to an investor.

As part of the debt resolution plan, the ratio of assigned awards and claims to total debt will be up to 2.3 times, depending on the total debt and mix of awards and claims.

The carved-out debt will then be restructured as a 10-year instrument, payable after the sixth year onwards with equity upside shared between the investor and lenders as agreed in the waterfall mechanism. HCC’s remaining stake of 49 per cent after repayment of debt and capped IRR (internal rate of return) to the investor, will fold back to HCC. According to the plan, HCC’s guarantee will be limited to 20 per cent of debt (principal amount) transferred to the SPV.