Separate entity for BOT projects may help de-leverage Gayatri Projects

Hyderabad-based Gayatri Projects Limited, a significant player in road construction sector, has decided to create a separate entity for the BOT (Build Operate and Transfer) road projects and transfer all those existing assets to the new entity.

The move, approved by the board of directors yesterday, was aimed at rationalising the business, the company said.

Gayatri currently has 7 road assets, four annuity and three BOT projects with a total length of little over 500 kms. Where as about 51 per cent of the over Rs 10,000 crore-order book of the company constitutes EPC road project contracts followed by 30.4 per cent from the irrigation sector. The company claimed to have so far executed over 5,000 kms of road projects across the country.

Many infrastructure companies in the past had bid for BOT road projects and invested equity and debt in anticipation of handsome returns by way of toll revenues in the concession period, based on the traffic projections that were more often found to be not realistic in the immediate term. Execution delays and lower toll revenues created interest cost burden on the companies forcing them to subsequently sought relief in loan repayment terms.

The move to create a separate entity for the BOT road assets comes at a time, when the Gayatri management has stepped up efforts to secure more EPC projects, particularly in the highway sector, requiring more liquidity at hand.

Gayatri too was trying to bring down the Rs 4,000 crore debt in the recent times as the fall in revenues sharply impacted the company's profits over the past three years.

"By seeking to transfer all the BOT assets to a new entity, the promoters are trying to de-leverage at the holding company level. Along with the transfer of these assets they would also be transferring all the liabilities carried by these road projects, "an analyst of a rating agency told Business Standard.

Once the liabilities are transferred to the new entity the holding company will have enough head room to raise fresh loans and issue fresh bank guarantees to new projects, Currently Gayatri Infra Ventures, a subsidiary of Gayatri Projects, is dedicated to the development of road assets besides acting as a holding company for all the existing road assets. It has 100 per cent stake in Indore-Dewas Tollways Limited as well as in Sai Matarini Tollways Limited while in other five projects it holds 50-51 per cent equity.

The company had recently sold the Western UP Tollways along with its joint venture partner NCC to the Cube Highways. In 2014-15, the company revenues stood at Rs 1,600 crore as compared with Rs 1,813 crore in the previous year. Its net profit halved to Rs 22 crore in the last financial year from the Rs 48 crore in the previous year.

Gayatri group also has interests in power and hotel sectors.