Lanco Infratech, the company owned by controversial politician Lagadapati Rajgopal, is slowly slipping into a vicious debt trap. The company’s poor financial situation can be understood by the fact that it has failed to pay even salaries to its employees for the past two months.
Lanco is sitting on a debt of Rs 32,500 crores and is surrounded by multiple problems which include legal cases that threaten the very existence of a couple of its major business units.
Lanco Infratech reported a net loss of Rs 455 crore for the first six months ending September 2012, compared with a profit of Rs 22 crore in the same period in 2011.
Lanco’s debt to equity is at about seven times, which is considered highly risky by investment advisers. Lanco has defaulted on payments twice in 2012 as it is facing huge losses in its power business which has resulted in an operating loss. This means Lanco is not even earning enough to cover interest costs leave alone repaying the loan.
Lanco group’s take over of Griffin Coal mine in Australia ran into rough weather as a Perth-based company named Perdaman Chemicals has moved the West Australian Supreme Court to wind up that company over an alleged breach of contract in supplying coal.
An adverse judgement in this case may deal an irrecoverable blow to Lanco.
The company is also involved in a serious litigation over its real-estate venture Lanco Hills. The Andhra Pradesh state Waqf Board is currently waging a legal battle against Lanco over the ownership of the land on which Lanco Hills is being built.
The Waqf litigation and the general slump in realty market has hit the Lanco Hills project very badly. The ambitious project, which was touted as the largest real-estate project in India and valued at 6,500 crores, was embroiled in controversies from day one.
The project was inordinately delayed and almost 5 years after breaking ground, it is nowhere near what was shown in the brochures. About 50% of the customers, who bought flats in Lanco Hills, have cancelled their bookings. The actual project now looks like a poor cousin of what was shown in marketing brochures. The Signature Tower – a 122 floor tower, which was supposed to be the center-of-attraction of this venture, was shelved due to poor response.
Some bitter customers say that Lanco Hills promoters have cheated them by promising the moon and failing to deliver. Online forums are full of angry customers venting out their frustration on Lanco Hills fiasco. So bad was the customer backlash that Lanco had to hurriedly shift its office from Hyderabad to Gurgaon sometime back.
From past 6 months, Lanco has been trying to sell the Lanco Hills project for a paltry sum of Rs 2000 crores, but is not finding any takers. Lanco management says that it will never again venture into real-estate in future.
In power sector, which is Lanco’s main source of revenue, several of its power plants are plagued by issues, which are adversely affecting its cash inflows.
The Anpara C power plant in Uttar Pradesh is not operating at full-capacity because the power tariff in that state is said to be un-remunerative to the extent that each unit it sells leaves it with a loss of 30-35 paise. Anpara C is facing a loss of around Rs. 100 crore a month because of this un-remunerative tariff.
Lanco’s Amarkantak Power project also ran into rough weather due to faulty equipment imported from China. Adding to its woes, Coal India had cut coal supply to Lanco Amarkantak because of its failure to enter into a valid Power Purchase Agreement with a state power distribution company. The issue got resolved only a couple of weeks back. But, the long delay in commission to this power plant resulted in steep increase in project cost and is bound to affect its profitability.
Sitting on a Debt Mountain
Lanco Infratech is currently sitting on a debt mountain of Rs 32,500 crore. Its stock price has nose-dived. The company’s recent attempts to raise up to Rs 4,150 crore by selling a minority stake in its power holding company also failed miserably.
On October 23rd, 2012, Credit rating agency CRISIL downgraded ratings on the bank facilities of Lanco Infratech, for delays in repaying its debt of Rs 250 crore. The debt was due on October 23rd. CRISIL said the delay highlighted the pressure on the company’s liquidity. According to CRISIL, Lanco has total repayment obligations of around Rs 8 billion (Rs 800 crore) in 2012/13, of which Rs 7 billion (Rs 700 crore) is due in three bullet repayments in October and November 2012, and January 2013.
Adding to its current debt, Lanco Infratech announced in December that it will borrow $2 billion (around Rs.11,140 Crores) from China Development Bank (CDB), owned by the Chinese government, for developing two 1,320 megawatts (MW) power projects in Uttar Pradesh.
Lanco For Sale!
To ease the ever rising debt burden, Lanco is planning to sell several of its business units and also dilute its stake in several others. Here are some of the assets up for sale:
– Lanco Hills is up for sale for an estimated sum of Rs 2000 crore
– Lanco Infratech plans to sell its roads business which is estimated to be worth about Rs. 1,500 crore
– Lanco Udupi power plant – a 1,200 mw coal-fired power plant, was put up for sale last week