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Business News/ Companies / No end in sight for Jaypee Group’s debt woes
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No end in sight for Jaypee Group’s debt woes

Delay in servicing of debt obligations likely to go on as deal to sell cement assets could take a year to close

A file picture of the Yamuna Expressway. While the Jaypee Group is willing to sell most ofits assets, including the 165-km Yamuna Expressway, at the right price, buyers are not easy to come by. Photo: S. Burmaula/HTPremium
A file picture of the Yamuna Expressway. While the Jaypee Group is willing to sell most ofits assets, including the 165-km Yamuna Expressway, at the right price, buyers are not easy to come by. Photo: S. Burmaula/HT

Mumbai: Manoj Gaur-led Jaypee Group has, over the past year, defaulted on its payment obligations on two tranches of bonds worth $350 million and analysts are of the opinion that the company’s capacity to service its debt has not improved despite efforts to sell assets and reduce debt.

On Tuesday, the group’s flagship company, Jaiprakash Associates, informed exchanges that it has defaulted on interest payments on a $150 million convertible bond issue. On 10 February, the group’s power subsidiary, Jaiprakash Power Ventures Ltd, said that it needed more time to repay a $200 million bond, due since February 2015.

About 49,038 crore worth of credit and loan facilities of Jaypee Group’s three listed entities—Jaypee Infratech Ltd, Jaiprakash Power Ventures and Jaiprakash Associates—already have a default rating on account of delays in servicing of debt obligations as of October 2015.

The most recent instances of payment delays are symptomatic of the stress that continues within the group. The pressure may persist as recent asset sales will take time to close.

On 28 February, Jaiprakash Associates announced that it would sell its cement plants in six states for 16,500 crore to UltraTech Cement Ltd. The company plans to use proceeds from this sale to meet its interest obligations on the $150 million bonds. The deal, however, could take up to a year to close.

“Overall, unless the existing impairment is addressed, the problem will continue. Impairment is the shortfall of what they earn to what their loan book is," said Nirmal Gangwal, founder of turnaround firm Brescon Corporate Advisors Pvt. Ltd.

The group had an estimated debt of 75,000 crore as of 31 March 2015, according to the 21 October 2015 edition of Credit Suisse AG’s House of Debt report. It is not clear what portion of the 16,500 crore sale proceeds from cement assets will be used to retire debt.

Having sold its cement units, the group’s ability to quickly monetize other assets is also dwindling.

After the completion of the cement deal, Jaypee Group’s listed entities will be left with about six million tonnes of cement capacity, three thermal power plants, one hydropower plant, an expressway project and land parcels. While the group is willing to sell most of these assets at the right price, buyers are not easy to come by.

“Two of the thermal power plants have also unofficially been on the block, but nothing much has materialized," said an investment banker who advises power clients.

In a 1 March report, Elara Securities (India) Pvt. Ltd analysts Rakesh Kumar and Manuj Oberoi valued the remaining cement plants, with total capacity of six million tonnes, at 4,000 crore and its Bina thermal power plant at 3,500 crore.

“Of the three power plants (excluding Bina, which is under discussion with JSW Energy Ltd), the capital cost of Nigrie and Bara thermal plants and Vishnuprayag hydropower plant, with total capacity at 3,700 megawatts (MW), would be at 23,700 crore, as per the management," the Elara report said.

On 23 December, Mint reported that the Jaypee Group is in talks to sell its entire holding in the 165-km Yamuna Expressway project, after a year-long effort to sell a partial stake in the asset failed to materialize. There has been no further development on that deal either.

“The group still has assets to monetize and reduce debt levels. There are few takers to purchase large-size assets, given the present economic scenario and such deals also take time to materialize," said Jatin Babbar, assistant general manager (corporate ratings), Credit Analysis and Research Ltd.

Timely servicing of this debt purely through earnings continues to be a challenge.

An email sent to a Jaypee Group spokesperson on 2 March remained unanswered at the time of going to press.

Jaiprakash Power Ventures Ltd’s 1,320MW Nigrie plant is awaiting a final tariff order and is also facing issues of restricted operations due to lack of long-term power-purchase deals.

The operations of the 500MW Bina power plant in Madhya Pradesh have also been affected by low demand. The company has signed a so-called binding memorandum of understanding with JSW Energy for the sale of the Bina plant. “The deal is still under discussion," said the investment banker quoted earlier in the story.

On the other hand, the group’s infrastructure subsidiary, Jaypee Infratech, reported a net loss of 20.69 crore for the quarter ended 31 December. It is the holding company for the Yamuna Expressway project.

“This was the only non-core (not part of infrastructure) asset they were into. They will be back to being an EPC (engineering, procurement and construction) company. If the proceeds are used to repay debt, whether the remaining assets will be able to service the remaining debt is something we will have to see. Cement was the asset which was earning something for them," said a cement industry research analyst who did not wish to be identified.

Gangwal too said that the current approach of asset sales or bridge funding is a necessary but temporary solution.

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Updated: 10 Mar 2016, 02:52 AM IST
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