Engineering and Construction
Case Outline
- One of the leading civil engineering and construction companies in the country with presence across major sectors
- Owned infrastructure assets worth ~ INR 68Bn including ports, roads, power plants through its subsidiary
- Crisis brought on by slower economic growth and stuck up projects due to delay in obtention of various approvals, clearances, Right of Way etc.
- Aggressive competitive bidding left some projects to bleed chronically
- Situation worsened due to below expected returns on acquisitions, financed out of short term loans, made during boom period
Issue
- Inability to replace short term loans with long term loans due to prevailing RBI guidelines making the bankers being cautious to further expose to the sector and limitation due to subdued capital markets.
- Substantial increase in debt, being 14x of debt/ EBITDA, reaching to a level of over INR 100Bn.
- Arrangements of fresh monies to kick start the stalled projects and provide liquidity to the ongoing projects.
Normal Solution
- Restructuring of debt
- Mere deferment of principal and interest not a feasible solution in view of the depletion in working capital, future working capital requirements and adverse factors affecting the industry.
Brescon Value Add
- Changed the approach used by management/lenders to estimate funding gap, rather stressed on calculating gap by prioritizing and focussing on “cost-to-complete” of existing orders in hand
- Designed the comprehensive restructuring scheme, inter alia, securing additional loan of INR 7.5Bn to meet immediate working capital needs and statutory dues besides restoration of unused limits to the tune of ~ INR 27Bn.
- Securing sufficient window of 3 years for divestment worth ~ INR 20Bn, by sale of non core assets/ raising of funds in subsidiary
Impact
- Improvement in financial parameters
- Increase in market cap by 2x within a period of three years
- Protection of value for lenders, considering the nature of the industry and the collaterals.
