Lanco’s bid to sell stakes in units gets bogged down

The debt-laden firm plans to raise $750 million by selling stakes in its power-generating businesses to pare debt

New Delhi: Debt-laden Lanco Infratech Ltd’s plan to raise $750 million (around 4,065 crore) by selling stakes in its power-generating businesses to pare debt seem to have got bogged down.

Talks with Macquarie Group Ltd for the sale of its thermal assets are off, said a person aware of the development, requesting anonymity, although the Gurgaon-based infrastructure company denied this.

“The dialogue with Macquarie Group is continuing, but it hasn’t come to an agreement," chief operating officer T. Adi Babu said. “We haven’t called that off. We haven’t come to an understanding."

Talks with Norway’s SN Power for its hydropower business have been put on hold due to issues related to power purchase agreements (PPAs). Lanco has also been unable to get a buyer for its wind power business.

“We were talking with SN Power, but it is pending due to clarifications on PPA," Adi Babu said.

Another person aware of the developments said, “The talks between Macquarie and Lanco have failed." Lanco is seeking a high price for the stake and also wants to retain control, he said.

Lanco, which also mines coal and builds roads, wants to sell the assets to pare debt of 32,500 crore and fund other businesses.

A Lanco spokesperson denied that separate talks with Macquarie Group and SN Power have either failed or stalled.

High fuel costs and low capacity utilization have increased financial stress. Although income from operations rose by a robust 39.4% in the fiscal year ended 31 March, 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 losses. Lanco reported a loss of 112 crore for the year ended 31 March.

“We are looking at getting minority stakeholders. We are open to divest stake in non-core assets if we get good valuations. When there are so many negative things to the sector, what can one do? One can’t give it to buyers for a song. However, things are now shaping up for us," Adi Babu said in a phone interview on Thursday.

Lanco decided to exit its wind power business and mandated Ernst and Young to find a buyer, Mint reported 14 February.

“E&Y could only get one party which was offering a ridiculous amount," Adi Babu said.

While queries emailed to E&Y on Sunday remained unanswered, spokespersons for Macquarie Group and SN Power declined to comment.

Lanco has an installed capacity of 4,110 megawatts (MW). An additional 4,968MW of capacity is under construction.

Crisil Ltd downgraded ratings on Lanco’s bank loans in a 23 October report because the firm delayed repaying its debt of 250 crore due on that date.

Investors are pessimistic about the Indian power sector, said Abhishek Poddar, senior principal at management consulting firm AT Kearney

“Any company seeking new investment at old market values is likely to face challenges," he said. “To sweeten the deal, one has to put more on the table in terms of substantial discount or shared risks and commitments."

Lanco, which plans to raise coal production from 3.7 million tonnes (mt) to 5 mt by April 2013, is also looking to divest up to 50% in Australian subsidiary Griffin Coal Mining Co. Pty Ltd, Adi Babu said.

This comes amid a lawsuit filed by Perdaman Chemicals and Fertilizers Pty Ltd in the Supreme Court of Western Australia against Griffin Coal for the enforcement of a coal supply agreement. The dispute is over a $3.5 billion agreement for coal supply by Griffin to Perdaman’s urea factory in Western Australia.

“The Perdaman issue is still on," Adi Babu said. “We hope to find a partner after the issue is resolved."

Apart from fuel security for its power generation facilities in India, the acquisition of Australian coal mines was expected to give Lanco an opportunity to participate in the commodities trading market.