Lanco Infratech Ltd (LITL)’s failure to provide a 10 per cent Contract Performance Bank Guarantee has cost the company dear with Gujarat Industries Power Company Ltd cancelling a Rs 3,300-crore contract for a thermal power plant. LITL had recently informed the stock exchanges that it had initiated the process of Corporate Debt Restructuring (CDR).

In a communication to the stock exchanges today, Gujarat Industries Power Company Ltd (GIPCL) said it had cancelled the letters of intent (LOIs) issued to LITL for the execution of the 2 x 300 MW lignite-based expansion power project on account of LITL’s inability to submit the required 10 per cent performance bank guarantee within the stipulated time period and “thus committing breach and violation of the EPC Tender Conditions”. The GIPCL issued the Letters of Intent (LOIs) for EPC Contracts on June 1, 2013 to LITL.

Lanco Infratech, on June 3, had informed the stock exchanges that its EPC division had won a contract from GIPCL for its lignite-based thermal power project valued Rs 3,293.96 crore. The contract work included off- and on-shore supplies, civil and structuring works and on-shore services contract on engineering, procurement and construction basis.

GIPCL had said at that time that the contract was awarded for implementing its 2 X 300 MW lignite-based expansion power project near Dungri Village in Surat district adjacent to its Surat Lignite Power Plant (SLPP) on EPC basis. It had said the project was expected to be commissioned by end of Q 3 of FY 2016-17.

But apparently financial constraints had cropped up forcing LITL to go for Corporate Debt Restructuring (CDR), though it had earlier said it had no plan to do so. While responding to a query from a television channel, the company had replied on June 11 this year that the “debt of Lanco group, excluding working capital of power companies and Griffin acquisition debt, is Rs 34,249 crore as of March 31,2013. The debt was not that of one company and was the total of 21 companies of the group. But significantly, LITL said in its reply then that “there is no CDR proposal”.

However, LITL on July 27 said in its filings with the stock exchanges that it has “initiated the process” of CDR. The proposal was only for LITL and not for any of its subsidiaries, the company clarified. But it did not specify the total amount of debt involved in the CDR proposal.

CDR gives companies that are viable more time to meet their debt obligations subject to certain conditions, it had further said in its communication.

The shares of LITL (face value Re 1) were trading at Rs 6.02 in the BSE, up by 12 paise, with a trading volume of 10.95 lakh shares around 2.30 pm.

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