No pepper to spray away L Rajagopal-led Lancos Rs 36,558 crore debt burden

Written by ENS Economic Bureau | New Delhi | Updated: Feb 15 2014, 19:51pm hrs
L Rajagopal lancoCongress MP L Rajagopal, who sprayed pepper gas during the introduction of Telangana Bill in the Lok Sabha, talks to media in New Delhi. (PTI)
Shares of Lagadapati Rajagopals Lanco Infratech, the holding company of the group, are now trading at 35 per cent discount to the book value at the BSE on Friday.

The market cap of the firm is down to Rs 1,565 crore as the company, which originated in Andhra Pradesh, has almost eaten through its net worth. The total debt sitting on the books of the company is Rs 36,558 crore and there is little chance of it melting soon as its revenue has dipped to Rs 458.54 crore at the end of December 2013 just 50 per cent of the figure for last year, at the same time.

Yet the company has asked the 27-member consortium of banks for a fresh loan of Rs 3,300 crore as part of its corporate debt restructuring for Rs 7,700 crore, one of the largest such packages for corporate India.

As part of the deal the company has won a two-year interest holiday. Bank guarantees and letters of credit worth Rs 3,300 crore will be rescinded as a result of which, the company will get additional funds of Rs 2,500 crore from the bankers.

Also, as part of the agreement, the banks will reduce interest rates by 2.5 per cent for the first three years after the grace period of two years.

Interestingly, the current chairman of the company L Madhusudan Rao, younger brother of Rajagopal, will have to put in only Rs 153 crore as additional equity to add to the lean Rs 239.24 crore share capital of the company.

The 27-bank consortium, led by IDBI bank, has, however, asked Lanco to pare its assets. It has been advised to sell its three power projects. The combined valuation for Kondapalli project (1,500 MW), partial sale of Amarkantak power project and Vidarbha project (1,300 MW), which according to estimates is expected to fetch Rs 6,000 crore.

Lanco Infra EPC deputy managing director SC Manocha told The Indian Express the company expects to get the fresh funding flowing in soon.

The Lanco story started coming unstuck from 2011, the same year it made its most ambitious investment. It bought Griffin coal blocks in Australia at the height of the commodity cycle, for A$750 million (Rs 4,100 crore). It was meant to fuel its three power plants as the company with an installed capacity of 3,287 MW had become the largest private power utility that year in the country.

But the share prices began to slide immediately thereafter as the level of debt spooked the investors. The company was hit with a lawsuit filed by an Australia-based company Perdaman Chemicals and Fertilizers for Rs 16,733 crore that was almost three times the then market cap of Lanco. But despite these, the company which Rajagopal left twelve years ago is still identified with him.

Rajagopal, better known since Thursday as the pepper-spray MP, has ceased to be the chairman of the company with its headquarters at Gurgaon, but the L in Lanco is still known as Lagadapati. Officially Lanco is an acronym for Lagadapati Amarappa Naidu, who was Rajagopal and Madhusudans uncle. Rajagopal had incorporated the group in 1991 and is quite proud about the date coinciding with the beginning of reforms in India.

No wonder, the time line of the firm, on its website, stops at 2010 for the group, at its peak then, had 16 operating companies that produced electricity, ran coal mines and built roads. Lanco Power, for instance, which has a generation capacity is about 4,800 MW, is yet to wriggle out of freeze on payments from state electricity boards. The companys caller tune, however, says Lanco Always inspiring.

DEBT SWEETENER

* Lancos market cap is down to R1,565 crore as the company has almost eaten through its net worth

* Revenue has dipped to R458.54 crore at the end of December 2013, 50% of the figure for last year

* Yet the company has asked the 27-member consortium of banks for a fresh loan of R3,300 crore as part of a R7,700 crore corporate debt restructuring package

* Banks will also reduce interest rates by 2.5% for the first three years after a two-year grace period