Distressed firms try out new ways to remain afloat

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Indian companies have piled up a huge debt load of Rs 13.21 lakh crore, and are seeking ways to stay afloat by recasting their finances as interest liabilities rise.

Conservative estimates show the interest liability on this debt has risen to Rs 1.32 lakh crore per annum. In many cases, companies have put up their assets on sale.

Most companies, tho­ugh, are still trying to manage it through financial re-engineering by exercising such options as pooled financing and business trust listing to raise additional cash.

In pooled financing, companies leverage cash flows from other group entities or projects to mobilise additional debt. In business trust listing, companies put their assets under trust houses of different lenders and then list them, still retaining effective management control.

Some of the other measures being tried out by the debt-ridden companies include outright sale of assets – both core and non-core, induction of joint venture partners, securitisation and conversion of debt into equity.

CLP India, a large clean energy investor, pooled cash flows from different projects to mobilise debt for new projects and for expansion. The Chinese power company had to resort to pooling of cash flows to deleverage its balance sheets.

Experts say pooled financing is an advanced financing model that protects both lenders and borrowers against project risks, eliminate challenges and inefficiencies associated with the traditional approach.

Companies like IL&FS Engineering, L&T and Mytrah Energy are weighing options to mobilise additional funds by listing their assets on the Singapore Exchange through trust listings.

Firms that establish such trusts get the cash as they sell shares in certain businesses that offer steady streams of income. Then the companies compensate the investors by offering guaranteed yields over a period funded by those cash flows.

Unlike India, Singapore has a legal framework to list trusts to which companies sell their assets. Given the rupee depreciation over the past 18 months and with the Lok Sabha elections around the corner, many companies are trying to rework their plans.

“Companies planning to go for trust listings are waiting for clarity to emerge on the policy front and some improvement to happen in the macro-economic parameters such as current account deficit (CAD) and fiscal deficit,” said A Subbarao, group chief financial officer at RPG Group.

Religare Health Trust raised around $420 million by listing its chain of hospitals under a trust in 2012, while Indiabulls Properties mobilised $180 million in 2008. Both scrips are now trading below listing prices.

Kameswara Rao, executive director, power at PwC, said 60-70 per cent of Indian companies were trying cash conservation strategies or are asking for rollover of tenures and reduction in interest rates.

Almost all green projects in the power and infrastructure sectors are held up for several reasons: lack of fuel, land, environment or forest clearance or the companies’ inability to finance them. In such cases, banks are willing to stay with the projects and not let them turn non-performing assets.

“Ever-greening of assets is common, as no lender would like to see a project turn into an NPA after committing, say, Rs 5,000 crore for it. Hence, contributing another Rs 1,000 crore is a better idea for them,” said Salil Garg, head of corporate practice at India Ratings.

More than 30 companies took the corporate debt restructuring (CDR) route in 2013. The total restructured asset in the banking system has touched Rs 3.25 lakh crore, according to an RBI official.

As of December 31, 2013, the total debt of more than 223 BSE-listed companies from across sectors stood at Rs 13.21 lakh crore, as per data collated by corporate database Capitaline.

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