Hindustan Construction Company Limited (HCC) announced the successful completion of its debt resolution plan, supported by 23 banks and financial institutions.
The resolution plan has carved out a significant portion of HCC’s debt along with commensurate assets from its balance sheet. This event results in a long-awaited solution to the asset-liability mismatch faced by HCC on account of the delayed realization of its arbitration awards and claims. The plan comes on the back of sustained operations momentum and robust performance alongside the return of capital by its concessions arm, HCC said.
Under this plan, HCC has transferred ?2,854 crores of lenders’ liability along with beneficial economic interest in arbitration awards and claims of ?6,508 crores as consideration to a Special Purpose Vehicle (SPV). This SPV will have an external investor controlling at least 51 percent and HCC holding balance shares.
The SPV debt is significantly over-collateralized and is expected to be fully serviced from its own receivables. The underlying arbitration awards also carry interest (income), which comfortably covers any accrued interest on SPV debt.
Upon repayment of SPV liabilities, HCC will in fact have the right to receive surplus cashflows as a separate transaction, from the realisation of awards and claims (expected to be of significant value).
Arjun Dhawan, Vice Chairman, HCC, said, “This milestone gives us the freedom to focus on building our business with renewed confidence, by addressing a fundamental legacy issue relating to delayed arbitration payments. The resolution plan not only addresses the debt availed by HCC but also provides for resolution of HCC’s guarantee obligations in relation to Lavasa’s debt. This carve-out will reduce the debt on HCC’s books to ?3,575 crores, resulting in a significant reduction in interest burden to the tune of around ?400 crores annually, besides a comfortable and back-ended principal repayment over 10 years.”
Another source of capital for its operations and growth is HCC’s various non-core assets, which will be realized at the appropriate time and will further be used for the prepayment of any remaining HCC debt.
The delay in implementation of this plan, partly due to Covid-19, resulted in the interim freezing of the company’s working capital limits for over two years, while the plan was under implementation. There is no debt servicing obligation on the SPV for the next four years, and the repayments are back-ended from FY27 to FY31.
