Home / Market / Mark-to-market /  Infra firms offload assets to improve balance sheets

There is a sense of urgency among infrastructure and construction firms to monetize assets to ease cash flow challenges. Media reports suggest that IVRCL Ltd is planning to sell its stake in four more projects following its stake sale in three road projects a few days back. Likewise, GMR Infrastructure Ltd has steadily monetized assets—it has offloaded stakes in three projects. Analysts suggest that others are in the queue, too, looking for good valuations to offload their stake.

Clearly, the rush to sell is to raise funds either to direct resources into more productive assets, or to repay debt, or even to fulfil equity requirements for new projects. Most infrastructure firms are saddled with large amounts of debt. Reiterating this, Ajay D’souza, director, Crisil Research, says, “Our universe of 24 construction firms shows financial flexibility is constrained. The debt-to-equity ratio is up from 1.5 times in fiscal 2007-08 to 3.7 times in fiscal 2011-12. More importantly, interest cover ratio is down to 1.7 times from 3.2 times during the same period."

Meanwhile, project execution delays continue to trap firms with cost overruns and stretched working capital. Power projects, especially, are faced with poor plant load factors due to shortage of fuel. Crisil Research found that only 40% of 54 projects under four large construction firms were completed. The mounting interest burden has devoured already constrained cash flows, leaving many firms in the red in the last few quarters.

Given these circumstances, companies had little option but to rationalize operations, retain economically viable assets, while monetizing some to trim debt burden and strengthen balance sheets. IVRCL has a debt of around 5,200 crore. Consolidated net debt amounts of firms such as GMR and GVK Power and Infrastructure Ltd stand at roughly 38,000 and 15,000 crore, respectively. Firms are also selling assets to raise funds needed for equity infusion into fresh projects that need to get off the ground.

That said, the ride downhill for most infrastructure firms has been sharp. Shares of most stocks, but for large diversified plays, have seen huge erosion in prices. One may not see any big upsides in the sector in the near term, given that stress on balance sheets and the consequent impact on profitability will remain for at least a couple of years.

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