NBCC will have to take over little liability for HSCL takeover

State-owned National Buildings Construction Corporation (NBCC) will have to accept little liabilities for the proposed takeover of ailing Hindustan Steelworks Constructions Ltd (HSCL), as the Kolkata-based PSU’s entire Rs 1,475 crore debt (including interest) to the government would be waived off. Besides, the government will also grant Rs 200 crore to part-fund HSCL’s Rs 518-crore bank loans.

HSCL, administratively under the steel ministry, has Rs 150 crore worth of fixed deposits and excess land parcels worth Rs 100 crore. NBCC, a unit under the urban development ministry, would most likely monetise these lands to pay off the bank loan component that has not been covered by the government grant. Thus, the new owner would have to fork out from its coffer just about Rs 68 crore to pay off the entire bank loan to take control of a company, which generates around Rs 1,500 crore of business a year, a source explained.

Incidentally, HSCL, through its parent the steel ministry, has long been urging the finance ministry for a financial restructuring package for waiving off its loan to the government without success. The management of the company, however, had failed to convince the government that sans the repayment obligation on the government loan to the tune of R100 crore each year, it would not just make operational profit, as it has been making for the last few years, but would also generate around Rs 90 crore net profit each year.

The repayment of the interest on the government loan has kept it in the red for the last few years. HSCL reported a net loss of Rs 8 crore in FY15 on a turnover of Rs 1,520 crore. The loan it had taken from the government was to fund its voluntary retirement scheme between 2001 and 2013.

HSCL, which is currently sitting on an order book of Rs 8,000 crore and has just 70 employees, would be made a subsidiary of NBCC. Sources said NBCC would not have to infuse funds to run the company on full stream once again since HSCL gets around Rs 450 crore from the project management consultancy business. Instead, the takeover would allow NBCC to enter into the steel vertical, where it has no presence now. Of the Rs 1,520-crore turnover it clocked last fiscal, around Rs 300 crore came from the steel vertical, where NBCC has a nil presence.

Fittingly, NBCC does not have any plan to retrench HSCL’s existing employees; rather, it would induct some more in the coming days. A committee of secretaries had earlier suggested that the loss-making PSU should either be closed, sold or merged with other companies with similar business interests on the ground that there should not be two state-run companies doing the same job.

The PMO already gave its go-ahead for the takeover late last month, given the potential benefits of synergy between the two firms, both in the construction and infrastructure businesses. Subsequently, the boards of the two companies also approved the plan. The proposal needs the Cabinet’s nod now. The Cabinet note is being prepared now.

NBCC had registered 15% growth in turnover to Rs 4,633 crore in FY15 and profit after tax of Rs 278 crore. Despite the lull in the construction sector, NBCC has sustained its good show this year also with a turnover of Rs 1,426 crore and net profit of Rs 60 crore in the October-December quarter. Its order book till January, 2016 stood at Rs 17,170 crore.

HSCL was set up in 1964 as a construction firm. Later, it diversified into various other infrastructure areas and became a major player in the implementation of integrated steel plants. In the current fiscal, HSCL’s turnover is likely to come down to Rs 1,425 crore.