Infrastructure companies in a debt reducing spree
Indian companies, especially those engaged in infrastructure development of the country, have been busy reducing their debt burden. Many companies have sold off their assets to clear off debts as this has helped them in cleaning up their balance sheets. This has resulted in the improvement of the debt-equity ratios of the companies.
The banks have taken a sigh of relief who had lent to these companies as they were afraid that the companies might go bankrupt due to over-borrowing. The infrastructure companies were facing the consequences of borrowing beyond their means during the good times in the market hoping that they will be able to make huge profits and pay off the debts. However due to Economic slowdown, the infrastructure projects were stalled and the inflow of money reduced/stopped.
According to a note by Asia’s leading equity brokers and investment group CLSA, the Corporate de-leveraging has played out well so far, with more than $10 billion worth of assets already sold and another $5-7 billion in the pipeline.
Companies such as Jaiprakash Associates, Reliance Communication, GVK Power & Infrastructure, Lanco Infrastructure and IVCRL have been able to reduce debt considerably either through the sale of assets and stakes. They have also done the monetisation of assets and recently, after a spectacular run-up in the equities market, capital raising has also helped them to raise funds.
Jaiprakash Associates has raised nearly Rs 15,000 crore from the sale of assets until March and Rs 1,500 crore via qualified institutional placements. The infrastructure company has a total debt of around Rs 70,200 crore. After the equity offering, its debt-equity ratio has come down to six as opposed to 6.8 times.
Source- The Economic Times
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