Hindustan Construction Company (HCC)’s board has given the go-ahead for the company’s plan to issue equity share and optionally convertible debentures (OCDs) under the Reserve Bank of India (RBI)’s scheme for sustainable structuring of stressed assets, also called S4A.
In a note to exchanges on Friday, the company said: “The Board of Directors.... has approved issuance of 25,19,92,670 equity shares of the company of face value Rs 1 each, representing 24.44 per cent of the expanded share capital of the company and such OCDs of face value Rs 1,000 each not exceeding Rs 2,000 crore on a preferential basis, to the lenders.”
The HCC board has decided to convene an extraordinary general meeting of the company on January 5, 2017, to seek shareholders’ approval for the move to issue equity and optionally convertible debentures.
S4A allows lenders to separate sustainable debt from unsustainable debt and then consider equity conversion options for the company’s unsustainable debt. For HCC, the amount of unsustainable debt stands at Rs 2,426 crore.
The amount of debt a company can service using its existing cashflows is termed sustainable.
Promoters’ equity stake in the company is likely to go down from 36.07 per cent to 27.25 per cent after the issuance to HCC’s lenders.
The company has Rs 5,000 crore of standalone and Rs 10,000 crore of consolidated debt.
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The proposed restructuring is for the company’s standalone debt. HCC is the first company to get its debt restructured under S4A.
The board has also approved Rs 2,100 crore bank guarantee limits for release of arbitral award amount according to the Cabinet Committee on Economic Affairs’ approval for revival of the construction sector directing government agencies to pay “75 per cent of the arbitral award amount against margin-free bank guarantee”.
The release of arbitral award will help the company further address its debt-servicing and repayment commitments. HCC had recently received communication from government agencies to submit bank guarantee and escrow account details for release of 75 per cent of arbitral awards. HCC has arbitration awards for Rs 3,427 crore as on September 30, 2016. Further claims worth around Rs 4,173 crore are in arbitration process.