Borrowed glory

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Mumbai | Updated: Dec 11, 2014 2:28 AM

With little capex taking place, companies haven’t been inclined to borrow too much in recent months...

With little capex taking place, companies haven’t been inclined to borrow too much in recent months, reports Nitin Shrivastava in Mumbai.

Moreover, over the past six months many of them have been able to raise equity or sell assets thanks to which the aggregate net debt for a group of 15 highly leveraged companies stayed largely flat at the end of September at R5,26,197 crore compared with that at the end of March 2014. Among those companies whose debt has risen between April and September 2014 are Sesa Sterlite and DLF.

With the equity markets on a roll, money raised by companies through IPOs, QIPs and rights issues between April and September this year
was close to R24,000 crore. Idea Cellular, for instance, mopped up R3,000 crore through a QIP while Reliance Communications raised close to R5,500 crore. Jaiprakash Associates raised around R1,500 crore through a QIP in July, while GMR Infra’s R1,500-crore rights issue is on the cards.

Apart from raising equity, Jaiprakash Associates has also been selling assets including power projects and cement plants — the firm’s standalone debt has dropped to R20,933 crore. In the last 17 months, it has sold three cement plants.

Others trying to de-leverage their balance sheets include Bharti Airtel, which said it would sell 4,800 towers in Nigeria to American Tower for around $1.05 billion.


With foreign appetite for Indian paper increasing, several companies have successfully refinanced expensive loans taken a few years ago with cheaper credit. Tata Steel, for example, refinanced $5.4 billion in October at a lower rate. The company will spend around Rs 14,000 crore in FY15 on capex but is selling non-core assets — Dhamra port and land worth Rs 1,155 crore.

For many companies, however, balance sheets could remain strained for a long time. Although loss-making firm Lanco Infratech has agreed to sell its 1,200 MW Udupi thermal plant to Adani Power for Rs 6,000 crore, the firm’s interest cover will remain low at 0.51 times. It will probably need to sell more assets to be able to bring down the leverage ratio, currently at 11.23 times. Another firm with a high leverage ratio is Adani Power, the ratio having risen from 5.95 to 7.53 between April and September while its interest cover remains well below 1.

Cash flows at several companies remain strained though these should improve in the coming quarters. At GVK Power for example, operating losses in H1FY15 were Rs 182 crore. The firm hopes to be able to commercially develop its land bank near the Mumbai international airport and monetise other assets.

Crisil has pointed out that the ratio of debt of firms upgraded to that of those downgraded remained weak at 0.59 times in H1FY15, reflecting continued pressure on systemic credit quality. The agency believes improvement in credit quality will be gradual and any significant recovery will be contingent on a sustainable increase in investment demand.

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