The Lodha Group had, last week, claimed it bought DLF’s 17-acre plot in Mumbai at one-third the price paid in such deals two years ago. Though the claim may well be true, DLF, which is looking to shed some of its assets to reduce its high debt, was simply being pragmatic.
Like DLF, several others are looking to sell assets or stake in some businesses to de-leverage their balance sheets. However, very few deals are materialising, as discussions are stuck on valuations, with too many deals chasing too few buyers. Buyers are looking for deals at half the price sellers are asking for, says Nirmal Gangwal, managing director, Brescon Advisors.
Many agree. Issac George, director & chief financial officer of GVK Power & Infrastructure, says the scenario is normal, given investors are just not willing to take any risk due to policy uncertainties. He should know. GVK plans to sell stake or assets in its power, airport and coal businesses to raise funds. However, so far, it has been unable to do so because the valuation offers are just not good enough. In this respect, GVK is not alone.
Experts say debt-laden promoters would have to come off the valuation high horse and leave something on the table for buyers before it’s too late. When the economic or industrial outlook is subdued, the debt stress builds up. On an average, companies have a debt-to-equity ratio of about three times and their average interest cost is about 80 per cent of the operating profits (earnings before interest, tax, depreciation and amortisation), leading many to report huge losses.
“There is very high stress at this time point. Raising funds through equity is already difficult. On top of that, many bankers are not willing to extend funds to leveraged companies,” says Gangwal.
In the listed space, the infrastructure and construction segments account for the most distressed companies. Companies like HCC and ARSS Infra have already been referred to the corporate debt restructuring cell. “There are a host of others like IVRCL, NCC, Lanco Infratech, etc, looking to monetise assets,” says Nitin Arora, who tracks infrastructure companies at Angel Broking. Buyers, however, are eluding these companies.
Recently, IRB bought 100 per cent stake in MVR. But the stake sale was possible because the seller was desperate to sell assets. Some like Manish Kumar, who tracks the infrastructure sector at SBICAP Securities, say valuation is just a part of the problem. The quality of the projects was a major factor in the case of deals that materialised.
In the hotels segment, Leela has opted for corporate debt restructuring. Last year, it sold its Kovalam property for Rs 500 crore. However, though the group has a high debt-to-equity ratio of 2.8, which is affecting its financial performance, no other deal was recorded.