Lanco delays some salaries after new loans denied

New Delhi: Lanco Infratech Ltd has been forced to delay salary payments to its employees after creditors refused to extend new loans to the debt-laden infrastructure builder battling cash-flow problems, two persons aware of the development said.

add_main_imageGurgaon-based Lanco Infratech has 16 operating group companies with a combined salary bill of around ₹ 75 crore per month. The company, which has 6,800 employees, has been delaying salaries by nearly a month to around 3,000 employees at some of its group companies, the people said.

The delays started three months ago because of limited revenue inflows and banks turning off their credit tap. October salaries were only cleared on 23 November.NextMAds

“With the bank lending stopped, they are struggling to pay salaries,” said one of the persons aware of the development who declined to be named. “The problem has started this year. While the problem is not with the entire group, it is with individual projects that are registered as separate companies.”

A second person aware of the development—a Delhi-based power sector analyst—confirmed the salary delays. He also didn’t want to be named.

The delayed salaries at Lanco mirror the financial pressures confronting cash-strapped infrastructure companies that have invested heavily in big-ticket public works projects.

Slowing economic growth, which fell to a nine-year low of 5.3% in the quarter to 31 March and rose slightly to 5.5% in the following three months, and increasing input costs have contributed to their woes.

Lanco, which produces power, mines coal and builds roads, wants to sell some assets to pare debt of ₹ 32,500 crore and fund other businesses. Its plan to raise $750 million (around ₹ 4,180 crore) by selling stakes in its power-generating businesses to pare debt seems to have got bogged down.

Lanco shares have risen 35.47% in the year to date to close at ₹ 12.87 on the BSE on Tuesday. The benchmark Sensex has, in comparison, risen 21.92% to 1,8842.08 points in the same period. Wednesday was a holiday for the stock markets.sixthMAds

A Lanco spokesperson said on 24 November in an emailed response to queries from Mint that the group had paid salaries to all employees, including those at all special purpose vehicles, “up to and including October” and no dues were pending.

“In the last two to three months, there were occasions where some of our group companies paid salaries (approximately ₹ 25 crore out of the total ₹ 75 crore salary bill) with a delay of two-three weeks,” the Lanco spokesperson said.

“Delay in payment of salaries in some of our group companies is also because, as a matter of policy, we want each of our group companies (including our divisions) to manage their cash flows on their own,” the spokesperson added.

To be sure, delays in salary payments aren’t confined to Lanco or to the infrastructure sector. Kingfisher Airlines Ltd, for instance, has had a similar problem, leading to employee unrest, and its licence has been suspended by the aviation regulator pending the submission of a detailed turnaround plan.

Indian power generation utilities are struggling with the country’s worst shortage of fuel including coal, causing electricity plants to run on minimal supplies. High fuel costs and low capacity utilization have increased financial stress at Lanco.

The Lanco spokesperson cited media interactions the company had wherein it had estimated that several state-owned power distributors owed it as much as ₹ 3,400 crore. The company also had “huge outstandings” due from key customers in its engineering, procurement and construction business, the spokesperson said.

“Because of this huge outstandings due to Lanco Group, we have always been managing our cash flows as a priority and in the process we were ensuring that all our power assets are run in full capacity to the fullest potential,” the spokesperson added.

Although income from operations rose 39.4% in the fiscal year ended 31 March, Lanco’s operating profit contracted 12.3% as fuel and interest costs crimped earnings.

Fuel price increases led to a 68% increase in raw material costs. Interest costs rose 39% to ₹ 1,053 crore, which dragged the company into a loss of ₹ 112 crore for the year ended 31 March.

Lanco has an installed capacity of 4,110 megawatts (MW) across thermal, gas, solar and hydropower projects. An additional 4,968MW of capacity is under construction.

Rating company Crisil Ltd, which downgraded ratings on Lanco’s bank loans in a 23 October report, said that apart from liquidity pressure, the company’s risk profile would be under “stress over the medium term”, citing its exposure to projects that are under implementation.

Crisil also cited the “under-performance” of Griffin Coal Mining Co. Pty Ltd and Carpenter Mine and Management Pty Ltd that Lanco acquired last year for $740 million.

Crisil “believes that in the absence of equity infusion or stake sale in its road, wind, and hydel power projects, LITL’s (Lanco’s) financial risk profile will weaken further”, the report said.

This week, Lanco signed an in-principle agreement with China Development Bank for a loan of $2 billion to develop two 1,320MW power projects in Uttar Pradesh.