Bankers to Patel Engineering have sanctioned additional term loans of R1,700 crore and enhanced working capital...
Bankers to Patel Engineering have sanctioned additional term loans of R1,700 crore and enhanced working capital limits by R805 crore after the company failed to make payments on time for existing term loans and working capital line of credit totalling R7,000 crore. The company delayed payments beyond 60 days after the due date, according to bankers with knowledge of the matter.
For the nine months to December 2014, sales on a standalone basis fell 5% y-o-y to R1,715 crore. However, net profit declined by a sharp 66% to R25 lakh y-o-y as finance costs rose 19% y-o-y to R397.6 crore. Operating profit rose 14% to R321 crore.
Under RBI guidelines, the failure to make payments on time trigger the formation of a joint lenders’ forum. The construction and engineering firm’s lenders consortium consists of 16 banks. “The company’s fundamentals are strong, they are just facing temporary cash-flow mismatch,” a banker said. Patel Engineering did not respond to mails seeking comments.
A banker also said the company has some land in the suburb of Jogeshwari that it intends to monetise, and that it already has some interested buyers. Proceeds from the sale would be used to reduce the company’s debt levels, according to the source.
The company had informed stock exchanges in September 2014 that it intended to reduce its debt by R1,000 crore by monetising non-core assets. “The company has obtained shareholders’ approval for sale of a piece and parcel of land measuring 19,888 sq m at Patel Estate Road, Jogeshwari (West), Mumbai, and for disinvestment in thermal project at Nagapattinam,” the company had said via a BSE notification dated December 10.
An examination of some hypothecation deeds entered into by the company lists properties in Lonavala, Raigad, Bengaluru, Hyderabad and Chennai. Patel Engineering’s consolidated net debt for FY14 stood at R4,290 crore, according to data from Bloomberg. The company’s FY14 finance costs were R437.8 crore, a marginal increase over the previous financial year. Finance costs for FY13 stood at R436.9 crore, a 31% rise over FY12.
Patel Engineering reported a net profit of R16 crore for 2013-14, a fall of 75% from the number reported for FY13.
The company reported sales of R3,701 crore, down 9% year-on-year while Ebitda fell 13% to R500 crore.
“The current economy and the industrial conditions have its continuing impact in the performance of the company… Reasons include decrease in revenue, weakening of receivables cycle and high interest cost,” Rupen Patel, the company’s managing director, said in its FY14 annual report.
He added that in FY14 initiatives were taken to reduce the capital intensity of projects. “These initiatives focused on partnering with vendors and increasingly subcontracting of non-core activities to them. This reduces company’s own capital investments in different projects and releases critical working capital,” Patel wrote.
Analysts have signalled significant risks in the engineering, procurement and construction 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 two to three years leading to stretched balance sheets for these developers,” an HSBC report dated March 17 said.