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Business News/ Companies / The private jet, the coal pit and debt-ridden Punj Lloyd
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The private jet, the coal pit and debt-ridden Punj Lloyd

Indian builder Punj Lloyd has learned that racking up debt to add an executive jet and a coal mine to the mix maybe wasn't a good idea

Punj Lloyd’s Singapore units filed for judicial management on 17 February after creditors rejected one of the two subsidiaries’ debt restructuring plans, as some oil and rail projects bled losses and attempts to diversify into other business areas backfired. Photo: MintPremium
Punj Lloyd’s Singapore units filed for judicial management on 17 February after creditors rejected one of the two subsidiaries’ debt restructuring plans, as some oil and rail projects bled losses and attempts to diversify into other business areas backfired. Photo: Mint

Singapore: One Indian construction firm has learned that racking up debt to add an executive jet and a coal mine to the mix maybe wasn’t a good idea.

Punj Lloyd Ltd’s Singapore units filed for judicial management on 17 February after creditors rejected one of the two subsidiaries’ debt restructuring plans, as some oil and rail projects bled losses and attempts to diversify into other business areas backfired. Unsecured creditors would get zero to half-a-cent on the dollar recovery based on liquidation scenario analyses on 22 December, according to court documents seen by Bloomberg.

The builder’s financial strains provide a window into why Indian banks are scaling back lending as their stressed assets reach a 14-year high. Reserve Bank of India (RBI) governor Raghuram Rajan has given lenders until March 2017 to boost provisions, as soured loans threaten to hamper economic growth after 11 state-run banks incurred losses last quarter. A group of lenders has placed restrictions on Punj Lloyd’s investments to monitor its cash flow under a ‘corrective action plan,’ according to court documents.

It’s difficult to gauge the level of stressed assets from “corporates draining cash in poor investments," said Mehul Sukkawala, Singapore-based lead analyst for South Asia corporate ratings at Standard and Poor’s. “In many cases, it’s investments which seemed to make sense at the time of making investment, though due to the change in commodity cycle or economic environment or regulations, start registering losses."

Debt restructuring

“The company will work closely with the judicial manager, once appointed by the court, to solicit support" for a revised restructuring plan, Punj Lloyd said in an e-mailed reply to Bloomberg on 18 February. The potential recovery for creditors under the new plan is being assessed, it said.

The New Delhi-based group intended to restructure S$230 million ($163.5 million) of debt owed to banks and unsecured creditors at Sembawang Engineers and Constructors Pte and S$176 million at Punj Lloyd Pte, according to their restructuring documents. Creditors voted down the first, prompting the company to pull the second, according to a 18 January company filing.

“Of course, we’ll be glad if Punj Lloyd Pte comes up with a better plan," said Berry, a spokesman who goes by one name at Top Zone Construction and Engineering Pte, one of the creditors. “We had wanted to support the scheme of arrangement but we couldn’t beat the majority who opposed it. It’s better to recover some money than nothing at all."

Branching out

Punj Lloyd’s units in Singapore bought a $55 million Gulfstream G650 jet in 2008 and invested $41 million to develop a coal-mine in Indonesia 2011, both part-funded by loans from the parent company. The aircraft was sold to the parent for S$50 million in late 2014 to settle the loans, while the coal mine may be sold to repay debt, according to the restructuring documents.

“Punj Lloyd does not regret these investments," the company said in the e-mail. “Both the investments have economic value which would be unlocked in due course."

The listed parent sank deeper in the red in the nine-months through 31 December, with gross borrowings at 7,800 crore against 730 crore cash. In Singapore, it lost S$20.7 million building a petrochemical plant for Jurong Aromatics Corp. and faced late-delivery penalties on subway, waterworks and prison projects due to higher material costs, court documents show.

Indian banks had loaned 12 trillion to companies involved in engineering, construction and infrastructure sectors as of the end of 2015, double the volume five years ago, according to central bank statistics. India’s loans growth has cooled to near the slowest pace in 20 years, while junior finance minister Jayant Sinha estimated the size of stressed assets at about 8 trillion.

“The capital goods and engineering sector has seen a lot of trouble, especially those companies that are leveraged to oil and gas," said Taher Badshah, a money manager in Mumbai at Motilal Oswal Asset Management. “Those in this space have got badly hit by the slowdown." Bloomberg

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Published: 22 Feb 2016, 08:51 AM IST
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