BackBuoyant markets bring relief for JP Associates
The company, burdened with an enormous amount of debt, is finding buyers for its assets and equity shares
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Improving risk appetite and the resultant rise in equity markets are bringing relief for Jaiprakash Associates Ltd. The company, burdened with an enormous amount of debt, is finding buyers for its assets and equity shares. Its qualified institutional placement (QIP) of ₹ 1,550 crore worth of shares was oversubscribed and, according to a report, the company is planning to sell treasury shares. The share sale cannot come at a better time. The stock is up 40% in the last six months. The company wants to use the funds for working capital requirements and retirement of debt. By the end of previous fiscal, consolidated borrowings increased 10% to ₹ 61,100 crore. With interest costs eating up most of the operating earnings (Ebitda, or earnings before interest, taxes, depreciation and amortization), the company slipped into losses in the last fiscal year.
True, the proceeds from the latest share sale won’t make much of a dent in the company’s huge debt. But the share sale comes on the back of several asset sales. Over the past eight months, it has sold two cement assets. Group firm Jaiprakash Power Ventures Ltd has entered into an agreement to sell two hydro power plants. Through these transactions Jaiprakash Associates aims to cut ₹ 15,000 crore worth of debt.
According to IndiaNivesh Securities Pvt. Ltd most of these funds may be used to repay debt maturing in the current fiscal year. “If we look at consolidated debt outstanding, then around ₹ 115 billion ( ₹ 11,500 crore) would come-up for maturity in FY15E itself. This, when coupled with a lower interest coverage ratio of 0.8x, indicates tight liquidity conditions within the company. The current ~ ₹ 15.5 billion fundraising exercise indicates that JPA (Jaiprakash Associates) would use the proceeds to meet its near term debt repayment obligations and fund working capital requirements for its Fertiliser plant," IndiaNivesh Securities said in a note.
The company may announce further fund raising plans through asset or stake sales. In an interview to CNBC TV18, the management has said that it is planning to raise ₹ 5,000-6,000 crore more and bring down debt by around ₹ 20,000 crore. On earlier occasions, the company has also said that it does not have any major capital expenditure plans in the near term.
Predictably, investors are cheering the developments. While the steps will reduce gearing, only an investment-led recovery in the domestic economy can help the company and the stock regain its past glory.
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