Videocon goes for asset sale to tide over debt levels

Electronics to oil & gas major Videocon Industries appears in a hurry to reduce debt as lenders increasingly get aggressive with it. Signs of this became obvious when banks earlier this month were said to have demanded a corrective plan from the company to cut its debt levels.

This came on the back of a ratings downgrade by CARE of Videocon's bank loan facilities. In addition, CARE said it had suspended rating of the company due to inadequate information provided by it.

For the financial year ended December 2015 (Videocon follows a January-December accounting year), total debt was Rs 47,554 crore. Net worth or equity capital plus reserves stood only at Rs 8,090 crore for the period, implying how stretched Videocon's balance sheet was.

While chairman Venugopal Dhoot in an e-mail to Business Standard said telecom was the cause of high leverage for the firm, mounting debt had skewed Videocon's debt-equity ratio quite heavily. It stood at 5.88 for the financial year ended December 2015, higher than the 4.44 it reported for the year-ago period. Data has been compiled by BS Research.

Videocon is now putting in place an asset-sale plan that involves monetisation of non-core businesses such as telecom, real estate and general insurance to lower debt. "We are monetising properties located in Mumbai, Delhi, Kolkata and Bengaluru, as well as assets in Poland and Mexico. We are also looking at a possible monetisation of the general insurance business," Dhoot said.

The plan was kicked off in March 2016 when telecom spectrum in six circles was sold to Bharti Airtel for Rs 4,428 crore. On insurance, where Videocon has a joint venture with Liberty Mutual, the plan involves "unlocking value". That is selling either a part or whole of the business to an interested player.

The company adopted a similar strategy (of value unlocking) in oil & gas when it sold 10 per cent stake in a giant gas field off Mozambique for $2.475 billion (or Rs 15,000 crore) to Oil and Natural Gas Corporation and Oil India in 2014. While the company said it was doing this to retire debt, it is unclear how much of this investment did actually go into lowering its liabilities on that front.

 

For the financial year ended December 2014, Videocon's total debt stood at Rs 45,309, an increase of nearly 13 per cent over the financial year ended June 2013 (Videocon did not come out with its annual report in December 2012, jumping straight to June 2013 instead). The debt climbed another five per cent in FY15.

Dhoot, however, says Videocon's net debt level (its real obligation to lenders) is around Rs 39,000 crore. "If you minus the March month's spectrum sale amount of nearly Rs 4,500 crore, which will be paid directly to the banks, then (net) debt comes to Rs 34,500 crore," Dhoot added.

Of this debt of Rs 34,500 crore, Dhoot says Rs 21,000 crore is funding done offshore by foreign banks for the development of oil & gas fields in Brazil, Indonesia and other parts of the world.

"So, what we are left with is Rs 13,500-crore domestic debt, where monetisation of assets in real estate and insurance will fetch us Rs 5,000 crore. The balance of Rs 8,500 crore will be serviced by our current businesses, mainly Indian consumer durables, and domestic and international oil & gas operations," he said.

But analysts remain skeptical. In its statement earlier this month, CARE said its ratings downgrade was prompted by a steep decline in Videocon's operational and financial performance since the fourth quarter of FY15. In the quarter ended March 2016, Videocon reported a stand-alone net loss of Rs 189.6 crore compared with a profit of Rs 10.5 crore in the same period last year. Consolidated numbers were not shared for the period.

Standalone net sales declined 10.1 per cent to Rs 2,768 crore in January-March 2016 against Rs 3,079 crore a year ago. During the quarter, the company said, consumer electronics and home appliances had a revenue of Rs 2,682.6 crore compared with Rs 2,851.3 crore a year ago, down 5.9 per cent, while revenue from crude oil and natural gas fell 62.5 per cent to Rs 87.8 crore during the quarter against Rs 234.4 crore a year ago.