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Lanco to restructure business, unlock value in subsidiaries

Lanco to restructure business, unlock value in subsidiaries
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First Published: Fri, Apr 18 2008. 10 36 PM IST

Aiming big: Chairman L.M. Rao says medium-term goals include executing projects of 15,000MW and developing 1 billion sq. ft of space. (Photo: K.Sudheer/ Mint)
Aiming big: Chairman L.M. Rao says medium-term goals include executing projects of 15,000MW and developing 1 billion sq. ft of space. (Photo: K.Sudheer/ Mint)
Updated: Fri, Apr 18 2008. 10 36 PM IST
Hyderabad: City-based Lanco Infratech Ltd, flagship of the Lanco Group, is restructuring its businesses to improve operational and financial efficiency, a top executive said.
Lanco Infratech, with interests in power generation, roads, airport development, ports, construction and property development, currently has 23 subsidiaries working on projects in 12 states.
Aiming big: Chairman L.M. Rao says medium-term goals include executing projects of 15,000MW and developing 1 billion sq. ft of space. (Photo: K.Sudheer/ Mint)
“Since all our business divisions have seen quantum growth, we felt a need to strengthen our infrastructure from the grass roots through reorganizing and restructuring,” said group chairman Lagadapati Madhusudhan Rao.
In January, Lanco asked Ernst and Young to prepare a restructuring report, which the audit and consulting company is expected to submit in the next three-six months.
“To begin with, we have taken up structural changes in our power division based on preliminary recommendations of Ernst and Young,” he said.
Currently, Lanco Infratech has 11 subsidiary companies in its power business executing projects with a total capacity of around 7,300MW at various stages of development. More than half of this capacity is already being built and the rest have secured agreements and fuel linkages, and expect financial closure over the next 12 months or so.
Last week, the company was awarded two so-called supercritical power projects with total capacity of 3,300MW by the Uttar Pradesh government, taking its power portfolio to 13,000MW, Rao said.
“The restructuring exercise would soon be extended to our other business verticals such as construction, infrastructure and property development,” he said. “The restructuring would encompass support services such as human resources, corporate communications and administration, keeping in view our organizational goals.”
“We have set for us a medium-term goal of executing 15,000MW of power projects, (developing) 1 billion sq. ft of residential and commercial space, and to enter airports, ports and Metro rail businesses by 2015,” he added
The company currently has an order book worth close to $2.5 billion (Rs10,000 crore) and is looking to execute $8 billion worth of projects through its construction, and engineering, procurement and construction divisions by 2015, Rao said.
“The size and scale of Lanco’s current projects is far greater than the projects it has already executed. The company needs to demonstrate its execution skill by overcoming the challenges posed by diverse changes in the regulatory and political environment over the period of execution,” said Shankar K. and Shashikiran Rao, analysts with equity research firm Edelweiss Securities Pvt. Ltd, in a conference call from Mumbai.
To execute the power projects, Lanco Infratech needs investments of around $13 billion. Of this, close to 4,000MW of power projects have already attained financial closure and the company is yet to firm up arrangements for 9,000MW capacity.
“We will be funding these projects through 80% debt and 20% equity,” said Rao.
The Edelweiss analysts were of the view that the restructuring and streamlining exercise could also help the company unlock value. However, in the short term, this did not imply a move towards listing any of the divisions separately, they said. The company does not need equity infusion to fund projects in hand and its equity contribution to its projects can be done through internal accruals and proceeds from its 2006 initial public offering (IPO), they said. The IPO was worth Rs167 crore.
Lanco Infratech is considering a different funding structure for its realty business. “We are talking to various PE (private equity) funds for our realty ventures. We may dilute holding in some of our realty SPVs (special purpose vehicles),” Rao said.
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First Published: Fri, Apr 18 2008. 10 36 PM IST
More Topics: Lanco Infratech | Markets | Power | Airport | Roads |