BL Research Bureau
Dilip Buildcon (DBL) had signed a share purchase agreement (SPA) for 5 hybrid annuity model (HAM) projects worth ₹702 crore with Cube Highways and Infrastructure last month. The move is expected to ease funding requirements for its pending projects. The stock has surged over 18 per cent since then.
The deal is for sale of 100 per cent stake in 5 of the 12 under-construction HAM projects of DBL. This will happen in two phases - 49 per cent after commercial operation date (COD) and the rest post the expiry of the mandatory lock-in period of two years after COD.
Since the concession agreement with NHAI prohibits the sale of equity stake during the construction period, the Cube Highways will invest 49 per cent equity in the form of optionally convertible debentures (OCDS), during the construction period, subject to certain conditions.
DBL in its latest June quarter reported an order backlog of ₹19,029 crore, of which 74.35 per cent comprises of road projects.
How does it help DBL?
The total investment required from DBL for the five HAM projects was ₹568 crore, of which ₹290 crore (51 per cent) has already been invested. Now, with the share purchase agreement, the equity requirement from DBL will be restricted to its current investment. The company is being paid a total consideration of ₹702 crore - both for the remaining equity requirement for the HAM projects and for the current 51 per cent stake.
DBL’s net debt stood at ₹3,343 crore as at the end of the latest June quarter, which is at 1.01 times the equity. This deal could help the company deleverage its balance sheet. While on the one side the unlocked equity investment could be redeployed on other projects, the reduced equity investment in the HAM projects should also help the company to obtain no-objection certificates from banks for potential future HAM project bids, thus making the way for new order inflows.
DBL is in advanced talks to monetise its remaining seven projects too in the next 3-4 months, at similar valuations. This could help the company bring down its debt levels further. The management had guided to bring down the net debt to the levels of 0.8-0.85 times equity by end of FY20.
This kind of monetisation of assets is not the first for the company. It had entered into a similar arrangement with Shrem Group in August 2017, wherein it had sold stake in 24 road assets (18 completed and 6 under construction HAM projects) for a consideration of ₹1,600 crore, of which ₹880 crore was received by the company and ₹270 crore was directly invested by Shrem (till June 30, 2019). The remaining consideration is likely to be received by the end of the third quarter of FY20 since the 6 under construction HAM projects are in the final stages of completion.