HCC gets breather under S4A Scheme as banks approve debt recast

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MUMBAI: Ajit Gulabchand led HCC, which currently is in corporate debt restructuring, has got bankers’ approval for restructuring it further under the recent RBI guidelines on ‘scheme for sustainable structuring of stressed assets (S4A) which will potentially provide the company relief on cash flows, the company said.

RBI introduced the S4A Scheme to achieve the twin objective of helping banks deal better with stressed assets and helping debt-laden infrastructure companies get their projects back on track.

Mumbai -based construction company HCC, which was inducted into the corporate debt restructuring cell four years ago due to its inability to pay loans as the cash flows dried up, is among the first big companies to restructure debt under the S4A Scheme.

Many more infrastructure companies are likely to follow. “This helps the company to bridge the gap between the cashflow timing mismatch.

What the lenders have done is a big positive for us as it gives long-term solution to us to grow our business, which in turn will add to cash flows,” chairman Gulabchand told ET. Under S4A scheme, the debt of a company is split in two components—’sustainable debt’, which cannot be less than 50% of the total; and ‘unsustainable debt’.

While the sustainable debt will have to be serviced over the same terms as that of existing facilities, the unsustainable part of the loan can either be converted into equity or other instruments under the supervision of Indian Banks’ Association’s overseeing committee. HCC has debt of Rs 5,000 crore, of which the ‘sustainable loan’ would be Rs 2,700 crore.

“We have a claim of Rs 2,700 crore. I am unable to pay the principal amount for loans because the claim is stuck. It will be released in 3-4 years, along with the interest. We also have Rs 2,400 crore of assets that can be monetised. This means even our ‘unsustainable loan’ is viable,” Gulabchand said.

He declined to comment on whether the ‘unsustainable loan’ of Rs 2,300 crore would be entirely converted into equity by the banks, which could potentially dilute the promoters holding from the current 36%. The company, currently, has a market capitalisation of Rs 1,873.88 crore. “The banks have 90 days to decide what they will do with the unsustainable loan. It will be wrong to assume it will be converted entirely into equity.”

In the last 10 quarters, HCC has improved its financial performance, with its operating profit margin rising due to a series of initiatives aimed at improving operational efficiencies, cost rationalisation, strict adherence of dispute resolution process and monetisation of certain assets at fair value.