Home > companies > L&T IDPL seeks govt help to tide over financial downturn

Mumbai: L&T Infrastructure Development Projects Ltd (IDPL), a subsidiary of India’s largest engineering and construction company Larsen and Toubro Ltd (L&T), is seeking help from the central and state governments to prevent further financial deterioration in two of its projects, said chief financial officer (CFO) Karthikeyan T.V.

Delays in land acquisition from National Highway Authority of India (NHAI) and a mismatch in traffic estimates have led to delays in repayment of dues at two of the company’s special purpose vehicles (SPVs) —L&T Halol Shamlaji Tollway Ltd and L&T Chennai Tada Tollway Ltd.

Ratings agency Icra Ltd has downgraded the ratings of both projects to D rating, indicating that the instrument in question is in default or will default on maturity.

L&T IDPL, which builds and operates roads, ports and other infrastructure, has sought government intervention to avoid turning the Chennai-Tadda SPV into a non-performing asset (NPA), said Karthikeyan.

NHAI, which invites bids from developers and awards them to the lowest bidder, is the sole agency responsible for the development of national highways in India. L&T IDPL, which operates 18 road SPVs, began constructing Chennai-Tada Tollway project in April 2009 through an SPV with schedule construction completion in September 2011.

“Even after six years, we were unable to complete the construction as we are yet to get about 25% of the land, and even the land given was not contiguous," said Karthikeyan. “So, as on 30 September, this project will turn into an NPA for purely technical reasons."

As per Reserve Bank of India (RBI) regulations, if an infrastructure project isn’t completed in four years from the schedule construction completion date, the banks can classify the asset as an NPA even if the borrower has been making regular payments.

NHAI declined to comment.

L&T IDPL terminated the concession agreement for the Chennai-Tada project with NHAI in June 2015 and has filed a writ petition seeking directions from the Delhi high court for protection of the asset and servicing the debt.

“The court has asked the SPV and NHAI to find a resolution. We have submitted our proposal, and the ball is now in NHAI’s court," said Karthikeyan.

The Chennai-Tada Tollway has long-term borrowings worth 475 crore.

L&T IDPL is simultaneously in negotiations to resolve issues at its Gujarat project.

The Halol-Shamlaji project in partnership with Gujarat State Road Development Corporation (GSRDC) started toll collection in 2012.

Karthikeyan said the Gujarat government, however, has developed an alternate facility by widening an existing road and has connected this road to the Halol-Shamlaji project highway.

“This goes against the spirit of partnership. So most of the vehicles are diverting to this alternate road after entering into our road and passing through one of the four toll plazas. Thereby, the toll collections are too low for servicing the project debt," said Karthikeyan.

L&T IDPL has held talks with GSRDC to seek a solution, said Karthikeyan. “It is critical that government authorities resolve the matter urgently."

The SPV carried out the four-laning of 173.06 km of SH-5 from Halol to Shamlaji in Gujarat.

Karthikeyan said GSRDC and the state government are considering remedies to put the project back on track. Its issues, like the ones being faced by L&T IDPL, that will delay progress, said an expert. “Many of the initiatives of NHAI have been geared towards enabling investors to exit (operational road projects) as well as with respect to encouraging new projects. But bulk of the issues are with existing projects, which are under construction. About 50% or more of the projects, which are in trouble, are the ones in construction period, hurt by land acquisition or environmental clearances," said Manish Agarwal, partner and leader capital project and infrastructure, PwC India, a consulting firm.

Several toll-based operational projects that are unable to service debt are the ones which overstated the amount of traffic that they were expecting, said Agarwal. “I think that blame lies on the developer as well as on the lenders who believed those traffic projections."

The road ahead

About six to seven of L&T IDPL’s road project SPVs are not profitable, L&T’s group executive chairman A.M. Naik said on 9 September.

In December 2014, Canada Pension Plan Investment Board (CPPIB) invested 1,000 crore in L&T IDPL. A second tranche of 1,000 crore will be invested before end of the calendar year.

L&T’s previous attempts to free up capital in L&T IDPL have not worked out as planned. In late 2013, L&T was considering an initial public offering in Singapore for L&T IDPL as well as listing certain road assets of the unit through a business trust in Singapore. The plan was shelved following CPPIB’s investments.

The company now plans to list its infrastructure assets under L&T IDPL in the domestic market through investment trusts. Capital markets regulator Securities and Exchange Board of India (Sebi) in August proposed to ease norms for infrastructure investment trusts (InvITs) as a way to encourage companies to unlock capital. “LTIDPL is evaluating the Indian infrastructure investment trust as an alternative platform and find the Sebi regulations practical and market-oriented," Karthikeyan said.

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