Hyderabad: Infrastructure company IVRCL Ltd said on Monday that it plans to exit the build, operate and transfer (BOT) space by selling its entire portfolio of assets to focus exclusively on engineering, procurement and construction (EPC) contracts which are considered to be less risky.
IVRCL is hoping to reduce debt to the tune of Rs.2,500 crore and generate an equity of Rs.600-800 crore by March 2015. It has piled up debt of around Rs.6,500 crore at the consolidated level and has been facing cash flow problems. The company proposed debt recast was approved in June by the corporate debt restructuring cell. The company’s BOT assets include seven road projects, one desalination project, and a land bank of 1,700 acres in Chennai, Bengaluru, Pune and Visakhapatnam.
“We have bid for road assets with an expectation of 19-20% internal rate of return (IRR), but our estimates went wrong, as cost escalated on account of interest rate jump from 7% to 12%, bitumen cost rose from Rs.36,000 to Rs.58,000, and project execution got delayed due to issues related to providing right-of-way,” said E. Sudhir Reddy, chairman and managing director of IVRCL. IRR came down to 11-12%, Reddy added. “There are no ifs and buts, we want to exit these (BOT) assets,” he said.
Reddy said IVRCL will focus on EPC contracts, the less risky route, unlike BOT projects where the company has to bring in equity and debt and get clearances from regulators to develop the project.
IVRCL has an EPC order book worth Rs.18,500 crore and is pre-qualified to bid for projects worth Rs.55,000 crore. It reported a loss of Rs.716.7 crore for the year ended March, while revenue stood at Rs.4,304 crore. The company’s finance cost stood at Rs.585 crore, which is 13.4% of revenue.
The company has recently signed a binding agreement to sell its entire equity stake in Chennai Water Desalination Ltd (CWDL) to Dubai-based water and power utilities provider Utico FZC for Rs.110 crore.
IVRCL holds a 75% share in CWDL, while Befesa, a unit of Spain-based energy, transportation and telecommunication conglomerate Abengoa SA, owns the rest. CWDL is a special purpose vehicle formed by IVRCL along with Befesa to build, own, operate and transfer a 100 million litres per day seawater desalination project located at Minjur, a northern suburb of Chennai, for 25 years.
If the transaction with Utico is completed, IVRCL will get Rs.110 crore in cash and will be able to reduce debt to the tune of Rs.250 crore from its books.
The company had also signed a definitive agreement with TRIL Roads Pvt Ltd, a Tata group company, in April 2013 to sell three road projects that include Salem Tollways Ltd, Kumarapalayam Tollways Ltd and IVRCL Chengapally Tollways Ltd in Tamil Nadu. The deal with TRIL is yet to be completed, as some approvals from the national highway regulator National Highways Authority of India and lenders are pending.
Meanwhile, IVRCL has put up two of its assets for sale that include the 49km National Highway (NH)-47 Jalandhar-Amritsar road project and 155km NH-59 Indore-Jhabua road project, which is nearing completion.
“The due diligence process is underway”, Reddy said.
IVRCL plans to complete the remaining two Maharashtra state public works department road projects that include the 85.11km four-laning of Karanji-Chandrapur and 77.9km four-laning of Baramati-Phaitan before they are put up for sale in the next tranche.
Reddy said IVRCL has tied up equity for all its projects. “The debt is like a monkey on the back,” he said, adding that he has set a target to retire debt of Rs.3,500-4,000 crore in the next two years if the asset sale goes as per plan. “We are holding up the sale of land bank for the moment, as we anticipate the macro-economy conditions to improve,” he said.
Of its 1,700 acre land bank, around 750 acres is near Sriperumbudur, Chennai where it is developing a golf-centric residential township project along with Kotak Realty Fund that holds 28% stake. At existing market prices the land bank is valued at Rs.3,000 crore, Reddy said.
“Companies like IVRCL are under pressure from lenders to sell assets to repay loans and generate liquidity for working capital,” said Satish Kantheti, joint managing director and equity research head at Zen Securities Ltd.
“Most Hyderabad infrastructure companies who were contractors, to begin with, thought it was a natural progression for them to become asset owners, which is not their DNA,” said an analyst who tracks infrastructure at a Mumbai-based brokerage house. The person didn’t want to be named citing his company’s policy. “They are forced to sell BOT assets as they stretched their balance sheets to a point where promoters have no wherewithal to infuse liquidity to execute projects,” he added.
