The builder of the countrys only Formula One racing track seeks to reduce debt by R15,000 crore ($2.5 billion) by selling its cement plants in southern and western India, some of its power generation units and property in a year, Suren Jain, managing director at Jaiprakash Power Ventures, said in an interview. The flagship Jaiprakash Associates has $10 billion of total debt, according to data compiled by Bloomberg.
The groups liabilities increased fivefold in five years as Chairman Manoj Gaur took on debt to expand the cement makers power, sports and construction businesses. Gaur is selling assets to cut costs and revive profit, which has fallen for two straight years, as a central bank engineered cash crunch prompts lenders to raise interest rates for the first time in two years.
The cash flows from operations wont be sufficient in the next one to two years to bring down the debt, said Anubhav Gupta, an analyst at Kim Eng Securities in Mumbai. If the company had sold a cement plant 12 months back the troubles might not have been what they are today.
Jaiprakash Associates had a net debt of about R61,200 crore, the highest among Asian makers of the construction material after China National Building Material Co., according to data compiled by Bloomberg.
The Indian company will need R8,100 crore to service its debt in the year ending March 31, Ankur Kulshrestha, an analyst with HDFC Securities, said in a note to clients on July 30.
Jaiprakash Associates shares have dropped 70%this year, making them the worst performing stock in the CNX Nifty index. Jaiprakash Associates fell 0.3%to R31.35 at 10:07 a.m. in Mumbai.
The companys convertible bonds yield 14%, said Hemant Dharnidharka, the Bangalore-based head of credit research at SJS Markets. The higher yield shows that the investors want a higher return for the comparatively higher risk for the name.
The group plans to sell about 30%of its cement capacity of 35 million metric tonne, Jain said without elaborating. Gaur is looking to cut debt at Jaiprakash Associates and its two subsidiaries Jaiprakash Power Ventures and Jaypee Infratech, he said.
Billionaire Kumar Mangalam Birla is in talks to acquire the Gujarat cement unit of Jaiprakash Associates, three people with direct knowledge of the matter said in November. Talks with Birla were revived after it terminated talks with CRH in October. Jaiprakash Associates has a 4.8 million tonne capacity in Gujarat and a 5 million tonne capacity in South India.
The company may sell the factories for about $120 a tonne of enterprise value, calculated as a sum of market capitalisation, debt and minority interest minus cash, lower than the assets replacement cost, Ashutosh Narkar, an analyst with HSBC Holdings in Mumbai wrote in a report to clients on August 2.
Jaiprakash Power is in talks to sell some of its hydro power plants, two people with knowledge of the matter said, asking not to be identified as the information is private. Jaiprakash Power generates 1,300 MW from hydel plants and has 500 mw of thermal capacity.
Jain declined to identify assets the company plans to sell.
The company plans to start generating power from a 1,320-MW thermal power plant this year and refinance loans for the unit, which will be cheaper as the projects would have started operations, Jain said.
The group also plans to sell about 200 acre of land owned by Jaypee Infratech for around R1,000 crore, Jain said. It sold 300 acre of land for around R1,550 crore, he said. It is also targeting home sales of around R1,000 crore each quarter this financial year.
Founder Chairman Jaiprakash Gaur, who started as a civil contractor, expanded into hotels in 1981 and started producing cement five years later. In the past five years, Jaiprakash Associates added 15 subsidiaries from air transport services and a company to process soya and mustard to managing a hockey team, says companys annual report.