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In a move to reduce debt by Rs.1,250 crore and generate additional liquidity of Rs.500 crore to drive growth, infrastructure major Hindustan Construction Company (HCC) has on Tuesday announced signing terms with a consortium of investors led by Blackrock for monetisation of an identified pool of arbitration awards and claims for a consideration of Rs.1,750 crore.
The transactions approved by company’s Board, and subject to requisite approvals, will allow HCC transfer its beneficial interest and rights in an identified portfolio of arbitration awards and claims to a special purpose vehicle (SPV) controlled by a consortium of investors.
Repaying debt
HCC will receive a consideration of Rs.1,750 crore from the SPV, which will be utilised to prepay debt of Rs.1,250 crore, including its entire term loan of Rs.942 crore which is due in the next 3 years and Rs. 308 crore of OCDs, the company said. The balance Rs.500 crore will be made available to fund working capital and business growth.
As a result of the transaction, the balance sheet of HCC would get de-leveraged with debt servicing over the next 4 years being limited to its working capital facilities, the company said. It expects approximately working capital assets, a combination of adjudicated awards and lodged claims, worth around Rs. 2,000 crore to leave its balance sheet, resulting in a partial write down of net worth.
The company noted the precise amount of write-down will be ascertained in HCC’s year-end accounts and is not expected to impact the Company’s business prospects materially. HCC will continue to retain a material amount of awards and claims with the transaction being limited only to an identified pool of awards and claims.
Financial turnaround
The agreement also envisions a claw back of value by HCC from the SPV in the event that the recovery of awards and claims transferred to the SPV exceeds certain thresholds. “This unique transaction will help unshackle HCC from mismatches in our cash flow caused by prolonged litigation cycles,” Arjun Dhawan, Director and Group Chief Executive Officer, HCC, said. “HCC will stand substantially de-leveraged as a result, which will bring us towards the end of our financial turnaround process,” he added.
The Overseeing Committee (OC) of the lenders, formed under the aegis of the Inter-Creditor Agreement (ICA) framework executed among lenders, has reviewed the proposal and requested consortium members to accord their respective approvals. Consummation of the transaction is subject to formal sanctions by lenders and requisite approvals from the investors, including the completion of required conditions precedent and final documentation.
Earlier this year, HCC has successfully completed its Rs.497.6 crore rights issue which resulted in an increase in promoter group shareholding which currently to 34.85 per cent. The company has also been withdrawn from CDR scheme invoked by lenders earlier.
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