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Business News/ Companies / Jaiprakash Power may default on $200 mn convertible bonds
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Jaiprakash Power may default on $200 mn convertible bonds

Firm looks to discuss repayment schedule with bondholders, says can pay all amounts due in February by Mar 2016

On Wednesday, shares of Jaiprakash Power Ventures closed at `11.67, down 1.6%, on BSE; the benchmark Sensex closed at 29,559 points, down 0.04%. Premium
On Wednesday, shares of Jaiprakash Power Ventures closed at `11.67, down 1.6%, on BSE; the benchmark Sensex closed at 29,559 points, down 0.04%.

Mumbai: Jaiprakash Power Ventures Ltd on Wednesday said the company may not be able to fulfil its repayment obligations to holders of a convertible bond, suggesting that the Jaypee Group continues to face a cash crunch despite efforts to sell assets as a way to raise funds.

In a filing to BSE, Jaiprakash Power Ventures said it would not be able to repay a $200 million foreign currency convertible bond (FCCB) due on 13 February. The company said it would like to engage in discussions with bondholders regarding the repayment schedule and invited them for negotiations on 2 February in Hong Kong.

“The company is confident of its ability to pay all amounts due under the convertible bond on or before 31 March 2016," said the notice to bondholders, which was submitted to the stock exchanges.

The convertible bonds were issued in February 2010 and had a conversion price of 85.81 per share built into them, according to data from Bloomberg. However, since shares of Jaiprakash Power Ventures are trading well below those levels, a conversion of bond holdings into equity is not feasible, implying that the company would need to repay the investors in cash.

On Wednesday, shares of Jaiprakash Power Ventures closed at 11.67, down 1.6%, on BSE; the benchmark Sensex closed at 29,559 points, down 0.04%.

The proposed restructuring is among the few options available to the company since raising cash to make repayments will not be easy, according to Nirmal Gangwal, founder and managing director at financial advisory firm Brescon Corporate Advisors, which specializes in liability management and structured finance.

“This is natural response in a given situation, as now Indian banks will not support such repayment unlike earlier time when banks have helped corporates to redeem FCCB by giving corporate loan or raising fresh equity," said Gangwal, adding that FCCB holders will appreciate the ground situation in the sector and may agree to restructure the repayment with a compensatory clause.

Explaining the reasons for the company’s inability to make repayments as scheduled, the company said that while conditions surrounding the recovery of Indian infrastructure and power sector have improved, recovery remains a work in progress.

“The power sector has been severely impacted on account of various reasons beyond the control of the company, which adversely affected the company’s operations leading to below-expectation performance of top line (revenue) and bottom line (profit)," the company said.

The Jaypee Group is saddled with a cumulative debt of 60,000 crore. Jaiprakash Power Ventures alone had debt of 17,887.72 crore at the end of the September quarter.

For the September quarter, Jaiprakash Power ventures reported a net profit of 299.81 crore, up 19% from a year ago, while net sales were at 1,200.17 crore, up 23.9% from the previous year. Earnings for the quarter ended 31 December are yet to be released.

The Jaypee Group has been attempting to sell assets to reduce debt and recently sold two of its cement plants in Madhya Pradesh to Aditya Birla Group’s Ultratech Cement Ltd for 5,400 crore. In the last two years, the group has divested assets worth 21,000 crore.

“The recent developments suggest the company may now look to refinance these bonds against the earlier plan to repay them outright. Delay in completing its power asset sale may have in turn delayed their bond repayment schedule," said an analyst with a domestic brokerage firm, declining to be named.

In November, JSW Energy Ltd agreed to buy the hydropower assets of Jaiprakash Power Ventures for 9,700 crore. An earlier deal, announced in July, to sell the hydropower assets to Abu Dhabi National Energy Co. PJSC (Taqa) didn’t work.

This is not the first time that an Indian company is seeking to reschedule payments to bondholders. In October 2012, Tulsi Tanti-promoted Suzlon Energy Ltd failed to repay $209 million in debt after bondholders rejected its request for a four-month extension. The default was the biggest on convertible bonds by an Indian firm.

In May last year, Suzlon restructured its FCCBs worth $576 million, after nearly one-and-a-half-years of tough negotiations with bondholders. Consequently, it will issue approximately $485 million of bonds and the new restructured bonds will have a maturity period of five years and one day from the date of issue. These bonds will mature in 2019-20.

“Companies that are currently in stress will take a long time before they turn around. The stress factor is greater for companies with exposure to the power, infrastructure and metals space," an executive from a rating agency said on condition of remaining unnamed.

Meeting the restructured repayment schedule would also remain a challenge, he added.

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Published: 28 Jan 2015, 01:28 PM IST
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