Jaypee fails to meet loan agreements

Company says it will have to sell more assets in future to meet its debt obligations

Jaiprakash Associates, which raised Rs 1,500 crore by share sale early this month, has warned investors it has broken many loan agreements. The company said it will have to sell more assets to meet its debt obligations. The proceeds will not go to the company.

The company said in its filings to stock exchanges, “The principal amount due under which our company is not in compliance with all covenants and ratios is Rs 10,079 crore. This is 35.77 per cent of our total principal amount of stand-alone debt of Rs 28,164 crore as of March 31.”

A Jaypee spokesperson said with the slowdown, infrastructure companies, specially those on a growth path, have suffered the most resulting in violations. The pacts, he said, were stipulated for a eight to nine per cent gross domestic product (GDP) growth projections and not four-five per cent GDP growth the country is seeing.

“Jaypee Group is current and regular in servicing interest and repayment across all its obligations despite being in the so-called breach of covenants (pacts). More, the fact that the qualified institutional placement (QIP) was oversubscribed in a day proves bankers and investors have faith in Jaypee's entrepreneurship and financial management.”

Jaiprakash has conducted asset sales to reduce its consolidated debt of Rs 60,000 crore, apart from selling stake to QIPs. The company sold its BASPA-II hydroelectric power project and the Karcham Wangtoo power project to Abu Dhabi-based fund TAQA. Jaypee Cement sold its Gujarat unit to Ultratech Cement for an enterprise value of Rs 3,800 crore. The company sold its 74 per cent stake in Bokaro Jaypee Cement to Dalmia Cement (Bharat) for Rs 689 crore.

Bankers say the company is looking for buyers for its cement plants in Solan, Himachal Pradesh and in Rewa, Madhya Pradesh.  The 3 mtpa Rewa complex can be sold for a valuation of Rs 7,300 crore and Birla owned Ultratech is one of the bidders, bankers say.

The asset sale is important as the company is not in compliance with its many of the financial ratios, including certain asset coverage ratios, debt to EBITDA (earnings before interest, tax, depreciation and amortization) ratios, interest coverage ratios, and debt to equity ratios among others, it said.

The non-compliance can lead to action by lenders to declare the company in default of our agreements and accelerate debt but the lenders have not taken any action as yet.

Jaypee is not the only company which is on an asset sale spree to cut its debt. A host of Indian companies including Videocon, Bharti Airtel and Reliance Communications have sold assets to meet their debt commitments.