The alarming rise in India Inc's debt , estimated to have risen by over 50-60 per cent from a year ago, is a serious cause of worry and efforts are on by the companies to pare their long-term loans by selling off assets.
"Across sectors, the debt might have gone up by 50-60 per cent," said Deven Choksey, managing director, KR Choksey, adding this could be on the back of envelope calculations. "Infrastructure sector had the highest debt followed by real estate as they were not able to commercialise many of their projects and debts remaining in their own books. The debt of telecom firms rose due to investments in 3G while for aviation firms, it is because of operational issues," Choksey added. Telecom major Bharti Airtel had a debt of Rs 65,039.5 crore, NTPC Rs 45,908 crore, Air India Rs 40,000 crore and Reliance Communications about Rs 38,500 crore.
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"Fund raising by offloading of equity is not happening - a common method for companies to reduce their debts - due to the present market conditions. The debt of most companies, whether mid- or large-cap, has been rising over the last couple of years," Jagannadham Thunuguntla, head, research, SMC Global Securities, said.
"Debt is like fire, and companies should know how to manage it well…. Mismanagement of debt would result in the firms being fried," Thunuguntla added. On April 17, the Reserve Bank of India (RBI) cut interest rates by a sharp 50 basis points, expecting the move to help a sagging economy, for the first time in three years.
"The overhead expenses have gone up, borrowing costs have risen, and there is also a sharp hike in input costs, not to mention the increase in interest rates. And for companies in the infrastructure space, delay in execution of projects due to the damp economic conditions resulted in increasing of interest costs," Alex Mathews, head of research at Geojit BNP Paribas Financial Services said.
According to industry analysts, companies are embarking on sale of assets, mostly terming them as "noncore" assets, to reduce debt. The country's largest real estate firm DLF, which is planning to raise Rs 5,000 crore-Rs 6,000 crore in this fiscal by selling noncore assets, has set up a team to hasten its planned process of sale of non-core assets. This move is likely to be followed by others such as Unitech, which is looking to sell non-core assets such as land, IT parks and SEZs to pay off debt.
Suzlon Energy plans to raise $100 million to $200 million by selling some "non-critical" assets in this fiscal year while Lanco Infratech, co-founded by entrepreneur Lagadapati Rajagopal, might offload stake to private equity firms to pare down debt.
"It looks difficult to sell assets in these markets and even if some of the companies manage to dispose of their non-core assets, those will be considered as distress sales. I doubt whether they will get the real value of those assets," Thunuguntla said.
Courtesy: Mail Today