 "Gammon India: Wait for more positives")
Gammon India saw its stock locked in the upper circuit (up 20 per cent at Rs 15.49) on Tuesday on news of that its lenders are discussing about Strategic debt restructuring (SDR). This means that the consortium of creditors to Gammon India is deciding to convert part of the company’s debt into equity as per new RBI norms that allow them to do so. The company's disclosure to BSE said that the Corporate Debt Restructuring Empowered Group (CDR EG) in its meeting held on November 23, 2015 has discussed and noted the invocation of SDR in the Company by the CDR Lenders, pursuant to RBI Circular dated June 08, 2015.
For the investors who have lost hope in the debt-laden company that has not been able to service its debt consequent to low operating income, the latest news has provide some ray of hope. But, it may be too early to rejoice. Experts as Jaspreet Singh Arora and Divyata Dalal at Systematix Shares & Stocks say that the spike in the share price is just on the back of announcements and is not related to any major change in the company's fundamentals.
Their caution also stems from the fact that the process of SDR is in itself elaborate and so the relief is not going to be very fast. For the part of debt to be converted into 51 per cent equity by banks itself an estimated 3 months. It is only after conversion to equity, the stake can be sold to interested buyers. There is a time period of 18 months prescribed by RBI in which banks can monetise their stake to strategic investors post conversion of debt into equity, says Sandeep Upadhyay, MD & CEO, Centrum Infrastructure Advisory. In this long period, a lot of things can change for the worse or better. Hence, it will be wise for investors to keep looking at further cues on new buyers etc before getting euphoric.
The engineering and construction company, Gammon India has been reeling under high debt of about Rs 14,800 crore. It had gone for corporate debt restructuring in July’2013. Of its overall debt, half is believed to be pertaining to its engineering, procurement and construction (EPC) business while another 26 per cent is on account of the transmission and distribution (T&D) and remaining segments.
The move of corporate debt restructuring did provide some respite in the interim, but the company operating performance did not gain enough to be able to service debt. There were hopes of the company being able to sell some of its assets to pare debt, but the same have not materialised. With the wait being long for the street which lost hope of a revival, the stock had tumbled to multi-year lows of Rs 10.75 in September this year. With the lenders feeling the heat, it is not surprising that they are now assessing all possible options.
For the investors who have lost hope in the debt-laden company that has not been able to service its debt consequent to low operating income, the latest news has provide some ray of hope. But, it may be too early to rejoice. Experts as Jaspreet Singh Arora and Divyata Dalal at Systematix Shares & Stocks say that the spike in the share price is just on the back of announcements and is not related to any major change in the company's fundamentals.
Their caution also stems from the fact that the process of SDR is in itself elaborate and so the relief is not going to be very fast. For the part of debt to be converted into 51 per cent equity by banks itself an estimated 3 months. It is only after conversion to equity, the stake can be sold to interested buyers. There is a time period of 18 months prescribed by RBI in which banks can monetise their stake to strategic investors post conversion of debt into equity, says Sandeep Upadhyay, MD & CEO, Centrum Infrastructure Advisory. In this long period, a lot of things can change for the worse or better. Hence, it will be wise for investors to keep looking at further cues on new buyers etc before getting euphoric.
The engineering and construction company, Gammon India has been reeling under high debt of about Rs 14,800 crore. It had gone for corporate debt restructuring in July’2013. Of its overall debt, half is believed to be pertaining to its engineering, procurement and construction (EPC) business while another 26 per cent is on account of the transmission and distribution (T&D) and remaining segments.
The move of corporate debt restructuring did provide some respite in the interim, but the company operating performance did not gain enough to be able to service debt. There were hopes of the company being able to sell some of its assets to pare debt, but the same have not materialised. With the wait being long for the street which lost hope of a revival, the stock had tumbled to multi-year lows of Rs 10.75 in September this year. With the lenders feeling the heat, it is not surprising that they are now assessing all possible options.