By: Pallavi Ail & Pranav Nambiar
The cash-strapped diversified engineering, procurement and construction conglomerate Punj Lloyd is looking to tap banks for an extra Rs 3,000 crore, its lenders confirmed. Company executives, meanwhile, responded to a query saying the firm was pursuing what is called a corrective action plan — a scheme by which the consortium of banks will supplement the existing lines of credit to help the company meet its reassessed working capital needs.
Punj Lloyd already enjoys credit lines — fund-based and otherwise — of close to Rs 10,000 crore, a senior executive in a public sector bank said. The firm’s net sales fell 41 per cent to Rs 4,881.51 crore (standalone) in FY15 as it posted a net loss for the first time in at least a decade, of Rs 506.66 crore, according to Bloomberg data.
The discussions for additional funds have been on for some time given Punj Lloyd was finding it hard to service its loans on time even seven to eight months ago; having classified the exposure as SMA- II (Special Mention Account), a joint lenders’ forum was formed and the group is now considering Punj Lloyd’s request under what is a ‘rectification’ option.
Not all banks are convinced, however, that they would like to add to their exposure. As of now fewer than the required 60 per cent of the consortium members, by number, have okayed the proposal. For the additional funds to be sanctioned, 75 per cent of the members — by value — also need to give their consent.
Punj Lloyd will soon hold an extraordinary general meeting to seek shareholders’ approval to issue debt securities up to Rs 1,500 crore, with an option to convert them into equity shares. Proxy advisory firm Institutional Investor Advisory Services (IiAS) has recommended that shareholders vote against the resolution.
“Punj Lloyd is currently defaulting on its bank loans, but has been repaying its debenture holders in time. Because of the liquidity stress, banks have agreed to lend to the company only if the debt is convertible to equity upon default, which is the basis of this resolution,” IiAS said in its report.
The advisory firm said that the “quantum of Rs 1,500 crore is high given the size of the company … The company does not have the capacity to absorb in the form of debt. Should it be converted to equity, dilution for current shareholders would be greater than 60 per cent.”
The company’s total debt rose 5 per cent to Rs 5,324 crore in FY14 over FY13 but it managed to pare its debt by nearly 15 per cent to Rs 4,554 crore at the end of FY15, according to Bloomberg data. However, finance costs have steadily risen by 14 per cent to Rs 646 crore in FY14 and further by almost 33 per cent to Rs 860 crore in FY15.
Punj Lloyd said that its funded exposure is approximately Rs 5,200 crore with the balance in the form of bank guarantees, letters of credit, etc. FE