Videocon eyes oil revenue to pare debt

Videocon Industries has debts of Rs 44,000 cr despite Rs 20,000 cr asset sales in last three years

With Dena Bank tagging its exposure to Videocon Industries as a non-performing asset (NPA), the company plans to use profits from its overseas oil and gas assets and selectively divest its domestic consumer durable business to repay debts.

“We have two large oil blocks on the verge of production in Indonesia and Brazil. These are likely to be highly profitable, allowing us to trim our domestic debt steadily,” Venugopal Dhoot, Videocon group chairman, told Business Standard when asked about deleveraging plans.

According to him, the Indonesian block is likely to start production late next year or in early 2019 and the Brazilian field is likely to produce its first oil in 2020.

Videocon Industries had consolidated outstanding debts of Rs 44,000 crore evenly divided between its domestic and overseas businesses, Dhoot said.  The company reported a consolidated gross debt of Rs 47,500 crore at the end of December 2015, the latest year for which the company’s audited financials are available.

Videocon Industries owns a 23 per cent stake in the Nunukan offshore block in Indonesia. The block’s oil reserves are estimated at 351.6  million barrels of oil equivalents worth $24.61 billion at current crude oil prices. Of this, Videocon Industries’ 23 per cent share is valued at  $2.5 billion. The company’s foreign assets, including those in Brazil, were valued at $12 billion (Rs 75,000 crore), Dhoot said.

He added the group wanted to repeat the success of the Mozambique gas field, which was sold for $2.5 billion (Rs 13,500 crore at the existing exchange rate) in the last quarter of 2013. “We will not sell the Indonesian asset but use the profits to repay Videocon Industries’ domestic debt,” Dhoot said. The company has applied to banks seeking to increase the tenure of its loans.

Analysts, however, doubt Videocon Industries’ plans to deleverage its balance sheet. “Nearly three years after receiving the sale proceeds from Mozambique, there is no meaningful decline in the company’s debts or interest,” said an analyst.

The company had booked Rs 13,898 crore from the sale of the investment during the financial year ending December 2014. The gains were, however, not visible in the company’s balance sheet and Videocon Industries’ consolidated debt climbed by Rs 2,200 crore during the year ending December 2015.

The trend was similar in its domestic debt. The company’s standalone gross debt was up by Rs 1,000 crore to Rs 24,000 crore during the half-year ending June 2016 from the previous six months ending December 2015.

Dhoot blames this on high taxes in Mozambique and banks blocking a chunk of the money in an escrow account. “Net of taxes, we received only Rs 9,500 crore from that sale, of which Rs 3,000 crore was utilised for debt repayment. We used some of the cash to pay interest while the balance is lying in our bank deposit, including in a Rs 2,000 crore escrow account,” he said.

Dhoot attributed the group’s debt problem to its defunct telecom venture. “Almost all our investment in the telecom business, including the parent company’s equity in the telecom subsidiary, was funded by debt. All this became NPAs when the Supreme Court cancelled our licence,” said Dhoot. At its peak in 2013, Videocon Telecom had assets of around Rs 6,500 crore.

The group entered into an agreement with Bharti Airtel last March to sell its telecom spectrum for Rs 4,428 crore. Videocon Telecom had rights to use the 1,800 MHz spectrum in six telecom circles.

In its efforts to reduce debt, the group is also selling real estate worth Rs 10,000 crore. The company’s headquarters in Fort, Mumbai, has been sold for Rs 300 crore. The group has funds blocked in the power and coal businesses. “We have 1,500 acres of land in Madhya Pradesh and another 700 acres in Raipur, Chhattisgarh, with all related infrastructure.  As a lot of funds are blocked in these stalled projects, we have to exit them,” Dhoot said.  

The Videocon Industries stock price is down nearly 15 per cent since December 2015, despite the company netting close to Rs 20,000 crore from asset sales, nearly five times its market capitalisation at the end of December 2015. During the same period, the benchmark BSE Sensex has climbed nearly 16 per cent. Videocon Industries’ current market capitalisation is Rs 3,350 crore, a fraction of its outstanding debt.

The group plans to sell a stake in its general insurance business at a valuation of Rs 5,000 crore as an additional measure to reduce debt. Another marquee brand, Kenstar is also on the sale list.

The immediate concern for lenders is the steady deterioration in Videocon Industries’ financial ratios. Standalone operating profits were lower than interest obligations in the last four quarters, making it impossible for Videocon Industries to service its debt.  Consolidated operating profits were lower than the interest obligation during its latest financial year ending December 2015.

The outlook is not bright for Videocon Industries, given its revenue decline and losses in its core business of consumer durables. Revenue in the consumer durables division was down 35 per cent, year on year, during the quarter ending December 2016, and its reported loss of Rs 8.1 crore (before interest and taxes) contrasted with profits of Rs 202 crore a year ago. Till two years ago, the division accounted for 80 per cent of Videocon Industries’ standalone profits before interest and taxes (PBIT). The rest was accounted for by its domestic oil and gas assets and the power generation business.

Any further decline in Videocon Industries’ consumer business could exert financial pressure on the company.