Mumbai: Indian companies are disposing of assets that aren’t central to their main business in an effort to both cut flab and use the proceeds to pay debt.

In the first four months of the fiscal year alone, companies put more than 17,000 crore of assets on the block, a Mint analysis shows. Many of them are so-called non-core assets—units that aren’t vital to their main business operations and can be disposed of to raise cash when needed.

Tata Steel Ltd, Tata Power Co. Ltd, Suzlon Energy Ltd, Bharti Airtel Ltd and the GMR Group are among the companies that have either sold or initiated the process of selling non-core assets. As of 31 March, these companies had a combined 2.4 trillion of debt on their books.

Optimism about a revival of the economy under the new government after two years of sub-5% growth and an uptick in the stock market that has driven up valuations is driving up such sales, which will aid companies in steamlining operations and increasing the management’s focus on their core business, apart from helping cut debt, analysts said.

“There is a desire among corporates to part with non-core assets and there is also investor optimism, leading to valuations that are aligned to what the sellers are willing to attribute to their assets, which is helping close some of these deals," said Pawan Agrawal, senior director at Crisil Ltd.

The fiscal year to next 31 March is expected to see asset sales adding up to at least 60,000 crore, said a 7 July report by Crisil Ltd. Nearly 60% of the transaction value could come from non-core units as well as overseas assets acquired by Indian companies to diversify geographically, the report said.

In the 18 months between January 2013 and June 2014, assets worth 80,000 crore have been sold, the same report said.

“Expected policy reforms and a buoyant capital market should lead to more such transactions," the rating agency added.

While the initial set of sales came from heavily debt-laden companies in the infrastructure sector, the trend is now broadening as improving sentiment is allowing promoters an option to exit businesses at reasonably good valuations.

For instance, in July, Tata Power agreed to sell its 5% stake in KPC Mines, an Indonesian-based coal reserve, for $250 million. In February, it sold its 30% stake in PT Mitratama Perkasa for $120 million.

Travel firm Cox and Kings Ltd sold the camping division of its Holidaybreak Ltd unit to France’s Homair Vacances for around 883 crore in June.

In July, Bharti Airtel said it was selling and leasing back 3,100 towers in Africa to Helios Towers Africa for an undisclosed sum in a move to cut debt in its money-losing Africa operations.

Many more deals are in the pipeline.

On 31 March, Mint reported that GMR Group wanted to sell its stake in an aircraft maintenance facility at Hyderabad international airport and had appointed investment banker Rothschild India Pvt. Ltd to look for buyers, citing three people close to the development. ​

In April, Suzlon Energy said it planned to raise 1,000 crore by selling its plants and real estate assets in India. The asset sales were part of the 9,500 crore corporate debt restructuring process that Suzlon started in January 2013.

Also, a handful of companies including Arvind Ltd and Crompton Greaves Ltd recently spun away non-core businesses, which analysts say could be a precursor to capital raising through stake sales or initial public offerings.

“Companies are selling non-core assets and using the proceeds for improving core operations, since this is not the time to just sit on these non-core units. Also, banks are advising companies for divestment of non-core assets before they can look at other fund-raising options," said Nirmal Gangwal, founder and managing director at Brescon Corporate Advisors, an advisory specializing in liability management and structured finance.

A March report by Standard Chartered Plc. said as many as 18 companies were planning to sell assets.

Experts say that highly leveraged companies will continue to explore the asset sale option.

Many international investors are buying assets against the backdrop of a low London interbank offered rate (Libor), an international benchmark, which cuts their cost of capital, analysts say.

The three-month Libor is currently at 0.24%, more than 50% down from its peak of 0.6% in January 2012. The average for the last 12 months is 0.24%.

“The Libor cost is at an all-time low level, but had it been closer to average, we do not know if the investor appetite would be the same," said Deep Mukherjee, senior director, corporate ratings at India Ratings and Research Pvt. Ltd.

But if you compare it to the amount of debt these companies are sitting on, then it is just the tip of the iceberg, he said, adding that a “huge amount needs to be sold to meaningfully reduce debt". Total debt at top 100 corporate borrowers as of 31 March 2013 was 16.4 trillion, according to a January report by India Ratings and Research.

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