Piling up debt

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Mumbai | Published: March 23, 2015 12:44:56 AM

Several top corporates could end FY15 considerably over-leveraged following the increase in net borrowing levels in Q3FY15...

Several top corporates could end FY15 considerably over-leveraged following the increase in net borrowing levels in Q3FY15, reports Devangi Gandhi in Mumbai. The aggregate debt burden of 10 of the top 15 leveraged companies went up by R19,324 crore to R3,88,103 crore over the nine months to December 2014.

Metal players borrowed R20,778 crore more during this time; the collective debt of Tata Steel, Jindal Steel and JSW Steel  increased by R18,257 crore, or 13% y-o-y compared to a 38% rise in FY14.

However, the collective EBITDA of these companies grew by 4% yoy. Tata Steel needed the money to fund capital expenditure and so borrowed R5,170 crore more, JSW steel needed additional working capital and borrowed R3,870 crore. Jindal Steel and Power needed to pay the additional levy for the usage  of operational coal blocks, cancelled by the Supreme Court in September last year; its debt rose by R4,252 taking the total to R41,934 crore. What has compounded the woes of steelmakers is the sharp drop in prices in a sluggish demand environment though with raw material costs also falling, the pressure on working capital pressure is likely to ease.

In contrast to the metals pack, telecom players like Idea and Reliance Communications reduced their net debt by more than R11,500 crore in the 9 months to December. Idea Cellular which raised equity to the tune of R3,750 crore between June-July 2014, used internal accruals to finance investments in networks and an additional 157.7 MhZ of spectrum purchases. Consequently, its net debt dropped by R8,133 crore, improving the debt to EBITDA ratio to1.12.

metal-producers

Analysts are concerned about whether the FY16 operating cash flows of Adani Power will be sufficient to cover interest and debt repayment liabilities.

India’s biggest private power producer reported net losses for a third consecutive quarter in Q3FY15 despite accounting for compensatory tariffs for its various projects which are not cash receipts. Given its acquisitions –it recently said it was buying Avantha P&I’s Chattisgarh power plant and is already in arbitration completing its purchase of Lanco Infratech’s Udipi power plant— Adani Power’s leverage (debt to equity) ratio of about 8 times may rise further.

While R6100 crore of fund- raising through a QIP and preferential allotment helped Reliance Communication lighten its balance sheet by R3,844 crore or close to 8% in the first half of the fiscal, it witnessed addition of R433 crore in net debt during three months to December 2014.

Bharti Airtel  continued its de-leveraging effort by announcing agreements to divest R5,900 crore in its tower business across Africa in the December quarter. However, the company reported a jump of R4,623 crore in its net borrowing during the quarter in the period. The increase was attributed to R6,458 crore of deferred payment liabilities for the spectrum.

Given the competitive bidding process observed in the ongoing spectrum auction, the near-term debt levels of telecom companies are likely to go up and may lead to higher debt numbers for FY15.

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