IVRCL Ltd, considered one of the hottest firms in the infrastructure business a decade ago and which fell on tough times, is close to raising around $150 million (Rs.1,000 crore) by selling some of its assets, according to two people familiar with the matter who asked not to be identified.
The firm is looking to sell three of its road projects in Tamil Nadu to Tata Realty and Infrastructure Ltd (TRIL) and a desalination plant to Dubai-based water and utilities supplier, Utico FZC, by December, said one of the two people, a consultant involved in the deals.
The funds raised from the sales will be used to reduce IVRCL’s debt, this person added.
TRIL and E. Sudhir Reddy, chairman and managing director of IVRCL, did not respond to queries.
Many of India’s infrastructure firms have been selling assets to pare debt. Their projects delayed by issues related to land acquisition, availability of fuel, financial constraints, a slowing economy and a combination of the four, these firms have had to restructure debt, mostly under the guidance of the banks concerned that the loans extended by them to these companies could turn bad (and end up as non-performing assets).
In August, Gammon Infrastructure Projects Ltd agreed to sell six road and three power projects to BIF India Holdings Pte Ltd for Rs.563 crore, taking advantage of a new government rule that has eased the exit of developers of operational road projects. Gammon, which was incorporated in 2001 and went public in 2008, had a net debt of Rs.3,947 crore as of 30 June.
In the past year, the Jaypee Group, too, has managed to sell many assets and pare its debt by one-fifth.
These sales include two hydropower projects, which have been sold to JSW Energy for around Rs.9,500 crore. Jaypee Group is also in discussions with JSW Energy for the sale of a 500 megawatts (MW) thermal power plant in Madhya Pradesh. The group’s debt stands at over Rs.61,000 crore.
In IVRCL’s case, the deals were in the works for some time, the second person, a banker from a lender that is owed money by the firm said, but there were delays arising from valuation mismatches and some regulatory hurdles.
In July 2014, a consortium of 20 banks led by State Bank of India approved a debt revamp package worth Rs.7,350 crore for IVRCL, through the corporate debt restructuring cell. Under the package, the firm also received fund and non-fund based credit worth over Rs.2,000 crore.
According to the consultant, talks with promoters are taking longer than expected. “More large banks are actively pushing for sale of assets and driving it themselves because there is a dimunition in value associated with infrastructure projects if it takes too long to sell them,” the consultant said.
The firm first signed a sale agreement with TRIL for three road assets, namely, Salem Tollways Ltd, Kumarapalayam Tollways and IVRCL Chengapalli Tollways Ltd (ICTL), in March 2013. “The deal could not be closed then because of some differences in valuation. The talks resumed earlier this year and the sale is expected to be closed by December, subject to regulatory approvals,” the banker said.
An expert said banks taking an active role in selling viable projects of debt-laden infrastructure companies is probably the best way to address the current rot in infrastructure lending.
“When lenders drive such asset sales, the best outcome for them tends to be when they are proactive early and while the under-construction project is still commercially viable. Most infrastructure-related asset sales taking place currently are operational and generating cash flows or very close to completion,” said Nikhil Shah, managing director at Alvarez and Marsal (India), a firm specializing in turnaround services for stressed companies.
Salem Tollways is a special purpose vehicle (SPV) set up to widen, operate and maintain a 53km stretch between Salem and Kumarapalayam, and has been operational since June 2010.
Kumarapalayam Tollways operates the 47km stretch from Kumarapalayam to Chengapalli and started commercial operation in August 2009. ICTL is an SPV set up to develop a 54.83km highway starting from Chengapalli.
Last December, IVRCL entered into a definitive sale agreement with Dubai-based Utico FZC to sell India’s first desalination plant, based in Chennai.
Chennai Water Desalination Ltd (CWDL) is also a SPV formed by IVRCL along with Befesa to build, own, operate and transfer a 100 million litres per day desalination project located at Minjur, a northern suburb of Chennai, for a period of 25 years.
IVRCL holds a 75% stake in CWDL, while Befesa, a unit of Spanish energy, transportation and telecommunication conglomerate, Abengoa SA, owns the remaining 25%.
In its annual report for the year ended 31 March 2015, IVRCL noted that both sales were still in the discussion phase and expected to be closed soon.
In September 2014, IVRCL’s Reddy said in an interview to PTI that the company had put Rs.4,000 crore worth of assets on the block and was expecting to exit its debt troubles within two years. The assets he listed included road projects which were both operational and under construction, and the desalination plant in Chennai.
Since then, IVRCL hasn’t made any progress on asset sales.
(This article was first published on Livemint.com)