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Lenders of Hindustan Construction Co Ltd (HCC) on Friday initiated a carve-out of about ₹2,100 crore of debt to a third-party-controlled special purpose vehicle (SPV) along with certain arbitration awards and claims, the infrastructure company said in a statement.
The debt/asset carve-out, which will be in the nature of a slump sale, is subject to lenders’ final approvals, it added.
This move will significantly deleverage the company and address its asset-liability mismatch, the company said.
As per the statement, lenders aim to seek their internal approvals and target to close the transaction prior to March 31, 2020. The company will also seek the requisite corporate approvals for the transaction.
The debt – along with receivables comprising approximately an Award cover of 1.0x (one time) and Claims under Arbitration of 1.5x – will move to an SPV controlled by a new investor, HCC said.
The statement said the tenure of the debt at the SPV will be up to 10 years and repayments from the proceeds of the awards will yield an IRR (internal rate of return) higher than current yields offered by HCC.
On March 26, 2019, the company’s board of directors had approved the monetisation of certain awards and claims through an SPV controlled by investors led by BlackRock, which was notified to the exchanges, HCC said.
Awards and claims
Subsequently, shareholders’ approval was taken to transfer awards and claims amounting to ₹2,082 crore in exchange for a cash consideration of ₹1,750 crore, it added.
The statement noted that “the extent of deleveraging is far greater in the case of the carve-out transaction than in the case of the monetisation transaction. The company is still engaged in discussions with investors and a curtailed monetisation transaction with an investor-led consortium, subject to lenders’ approvals, may also be pursued at a later stage.”
As a result of the above developments, the company said there may be a write-back, subject to statutory audit, of the provision taken in fourth quarter of FY19 on signing of terms of the monetisation transaction.
“Pursuant to the debt carve-out, HCC’s balance sheet will stand significantly deleveraged with no debt servicing obligations expected for the next 33 months. HCC will continue to work to realise its underlying assets to further improve its credit profile, allowing it to more substantively participate in India’s infrastructure roll-out programme,” the company said.
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