The cash-strapped diversified engineering, procurement and construction conglomerate Punj Lloyd is looking to tap banks for an extra Rs 3,000 crore...
The cash-strapped diversified engineering, procurement and construction conglomerate Punj Lloyd is looking to tap banks for an extra Rs 3,000 crore, its lenders confirmed to FE. Company executives, meanwhile, responded to a query saying the firm was pursuing what is called a corrective action plan — a scheme by which the consortium of banks will supplement the existing lines of credit to help the company meet its reassessed working capital needs.
Punj Lloyd already enjoys credit lines — fund-based and otherwise — of close to Rs 10,000 crore, a senior executive in a public sector bank said. The firm’s net sales fell 41% to Rs 4,881.51 crore (standalone) in FY15 as it posted a net loss for the first time in at least a decade, of Rs 506.66 crore, according to Bloomberg data.
The discussions for additional funds have been on for some time given Punj Lloyd was finding it hard to service its loans on time even seven to eight months ago; having classified the exposure as SMA- II (Special Mention Account), a joint lenders’ forum was formed and the group is now considering Punj Lloyd’s request under what is a ‘rectification’ option.
Not all banks are convinced, however, that they would like to add to their exposure. As of now fewer than the required 60% of the consortium members, by number, have okayed the proposal. For the additional funds to be sanctioned, 75% of the members — by value — also need to give their consent.
Punj Lloyd will soon hold an extraordinary general meeting to seek shareholders’ approval to issue debt securities up to Rs 1,500 crore, with an option to convert them into equity shares. Proxy advisory firm Institutional Investor Advisory Services (IiAS) has recommended that shareholders vote against the resolution.
“Punj Lloyd is currently defaulting on its bank loans, but has been repaying its debenture holders in time. Because of the liquidity stress, banks have agreed to lend to the company only if the debt is convertible to equity upon default, which is the basis of this resolution,” IiAS said in its report.
The advisory firm said that the “quantum of Rs 1,500 crore is high given the size of the company… The company does not have the capacity to absorb (the amount) in the form of debt. Should it be converted to equity, dilution for current shareholders would be greater than 60%.”
The company’s total debt rose 5% to Rs 5,324 crore in FY14 over FY13 but it managed to pare its debt by nearly 15% to Rs 4,554 crore at the end of FY15, according to Bloomberg data. However, finance costs have steadily risen by 14% to Rs 646 crore in FY14 and further by almost 33% to Rs 860 crore in FY15.
Punj Lloyd said that its funded exposure is approximately Rs 5,200 crore with the balance in the form of bank guarantees, letters of credit, etc. “While the company’s liquidity has been stretched for the last few years due to delayed receivables and delays in dispute resolution, the company has been able to meet its debt obligation without allowing the account to get into NPA (non-performing asset) category. Towards this the company has taken various measures to reduce debt. Chief among them is monetisation of our non-core assets and expediting claim settlements where ever possible,” the company told FE in response to questions sent.
More than 20 banks have an exposure to the conglomerate, which has interests in oil and gas, power and infrastructure.
The company, which posted losses for the first three quarters of FY15, swung to a profit in the fourth quarter, as it cut back on operational expenses. Standalone net sales in FY15 fell 41% to Rs 4,881.51 crore, compared with Rs 8,229.17 crore in FY14. Its FY14 net profit of Rs 7.81 crore turned into a loss of Rs 506.66 crore for the year ended March 31, 2015.
Punj, in an email, said that the entire EPC industry has been facing severe cash-flow stress on account delays in implementation of various projects leading to cost and time overruns on account of ‘right of way’ not being available, land acquisition issues and delays in environmental clearances from the clients’ side. It also added that government spending had been subdued from FY12 to FY14.
“No major infrastructure projects were undertaken during 2013-14, which lead to insufficient order stream. Working capital cycle of most EPC companies were stretched, due to delay in receivables and disputes around the additional claims, made by the contractor,” Punj told FE.
PN Krishnan, director of finance for Punj Lloyd, said during a conference call held with analysts on May 25 that EPC companies fell under the infrastructure bracket only partially, which precluded it from gaining advantage of schemes such as 5/25.
Krishnan said that the additional finance corrected the asset-liability mismatch in terms of some the claims that were expected to be received over a period of time. He added that the period for loan maturity would match the period in which it expects to realise some of its outstanding claims.
Analysts have signalled significant risks in the EPC exposure of banks, pegging it as the most stressed sector after metals in India. Almost 74% of the debt of such companies appears to be potentially stressed. “Construction companies are facing challenges due to reasons including cost escalation, delayed clearances, slower than expected traffic growth, lack of finance and rise in funding cost over the last 2-3 years leading to stretched balance sheets for these developers,” an HSBC report dated March 17 said.