 "Abhijit Rajan")
Construction and engineering major Gammon India has been reeling under high debt to the tune of Rs 14,800 crore, invested across engineering, procurement and construction (EPC) and transmission & distribution (T&D) businesses.
While the move towards corporate debt restructuring (CDR) in July 2013 provided some respite, the company’s operating performance was not enough to service debt. The firm’s consolidated debt, according to the last audited reports (September 2014), at Rs 14,000 crore did not show improvement as anticipated and the wait was long for the Street and lenders who had lost hope on Gammon’s revival.
The weak operating results of the low-profile Abhijit Rajan-owned company in the past few years can be attributed to liquidity crunch; unavailability of resources on timely basis; delays in execution of projects, land acquisition, and approval of design by clients; scarcity of labour and materials; and other operational issues.
The challenges for infrastructure companies started after 2010. During FY10-13, the companies bid fiercely and took contracts on low margins. However, financing was not easily available. Also, in case of road projects, the anticipated pick-up in traffic did not materialise. The situation was further compounded by land acquisition delays, leading to lower-than-expected revenue generation.
All this impacted the operating performance of companies. With operating profits not being sufficient to service debt (thanks to rising interest costs), losses widened and problems for lenders compounded. According to analysts, Gammon, a well-known infrastructure brand name during the 1980s, has been reduced to dust.
There were hopes of Gammon being able to sell some of its assets to pare debt, but that did not materialise. The private equity investors who had invested in 2005-2008 period also did not find exit from their investments till 2012-13. Hence, investments through the PE route, too, were under crunch.
As a result, over the years, Gammon India’s financials have deteriorated visibly. Its consolidated revenues declined from Rs 8,923 crore in FY11 to Rs 3,906 crore for the year ending September 2014. The company changed its financial year first from March ending to December ending in 2013 and then to September ending in 2014. Profit before interest and tax (PBIT) declined to a fourth (Rs 279.5 crore for the year ending September 2014) from Rs 1,022 crore in FY11. With interest cover declining from 1.53 times in FY11 to 0.01 times at the end of September 2014, losses continued to widen. The company had declared profits of Rs 82.41 crore at a standalone level for the year ending September 2015, helped by Rs 255.2 crore of other income. It has not declared its consolidated numbers for FY15, though.
Thus, lenders looking at cutting their losses are taking equity control through strategic debt restructuring (SDR). The CDR group took appropriate steps and on November 23, 2015, it discussed and noted the proposal of CDR lenders for invocation of SDR in Gammon India. The other steps include plans to carve out the civil EPC and T&D businesses with change of management. The ‘reference date’ for the purpose of SDR was November 17, 2015.
According to the plan, nearly Rs 245 crore will be converted into equity shares to be held by CDR lenders, taking lenders’ equity stake to 60.1 per cent in Gammon India. This is not a good situation for promoters who are losing control as lenders aim to cut their losses.
The companies going for SDR might not be looked at by investors with euphoria. The process of SDR is in itself elaborate and relief is not going to come fast. For the part of debt to be converted into equity by lenders itself takes close to three months. It is only then can lenders sell this stake to interested buyers. “There is a time period of 18 months prescribed by the Reserve Bank of India, in which banks can monetise their stake to strategic investors after the conversion of debt into equity,” says Sandeep Upadhyay, managing director and chief executive at Centrum Infrastructure Advisory.
The company’s key projects include Signature Bridge project (Rs 821 crore), Bihar elevated road corridor (Rs 717 crore), Rajahmundry Godavari bridge (Rs 740 crore), Chennai Metro project (Rs 1,947 crore), etc, which are at various stages of development. While the company has some good projects in hand, completion or monetisation of these are crucial for a turnaround.
Also, with fundamentals unlikely to improve soon, the company is not expected to come out of the woods soon.
An email questionnaire sent to the company/promoters seeking their response went unanswered.
