Business Today

Hurdles on the growth highway

Today, every attempt is being made to conserve cash. As money gets expensive, if not scarce, infrastructure developers may not find it easy to reach financial closure.

E. Kumar Sharma        Print Edition: November 16, 2008

The one on track: This IVRCL project on the Salem-Coimbatore route is currently under construction
The one on track
When Issac A. George, chief financial officer (CFO), GVK Power and Infrastructure, says: “Cash is king,” he endorses the reverence of the rupee by every finance honcho in the infrastructure sector. After all, this is an industry that builds everything from power plants to highways to airports—all debt-intensive projects that soak up thousands of crores of rupees. At a time when liquidity has dried up globally, and banks are reluctant to lend, mopping up every available rupee—or dollar—is vital. If borrowing is proving a Herculean challenge, the option is to simply tighten the pursestrings and conserve every rupee. In such trying conditions, a number of infrastructure development companies, including IVRCL infrastructures and projects, Nagarjuna Construction Company, Lanco Infratech and Maytas Infra and, of course, GVK Power and Infrastructure, are pulling out all stops to keep a lid on costs, and monitor project progress with a microscope.

A. Ranga Raju,MD, Nagarjuna Construction Company
A. Ranga Raju
A. Ranga Raju,MD, Nagarjuna Construction Company

Projects in the works: A port at Machilipatnam in Andhra Pradesh is being implemented along with another Hyderabad company, Maytas Infra

Total cost: Rs 1,650 crore

Funds still to be raised: Debt of Rs 1,000-1,200 crore

Status: Yet to achieve financial closure

“Today, every attempt is being made to conserve cash. Each item of our expenditure is being reviewed to see if we can look for some sort of cuts. There is now an element of austerity and we are trying to ensure that we don’t overspend,’’ says George. What’s more, starting October, most of its employees have opted to stop travelling business class (according to GVK officials, travel is a huge component of overall costs for the company). Such austerity has helped the company build a cash kitty of sorts over time. With a palpable sense of achievement, George tells BT: “Today, we have almost Rs 200 crore in the form of short-term fixed deposits in banks that we can tap any day.”

Down south on the road leading from Salem to Coimbatore in Tamil Nadu, IVRCL is having a direct board-level involvement into monitoring the execution of its two build-operate-transfer (BOT) projects in the road segment in that region. The good news is that both the projects have attained financial closure. Yet, the IVRCL top brass, represented by none other than R. Balrami Reddy, Executive Director (Finance), now makes frequent visits to these project sites.For a few other players, like Lanco Infratech, for example, the best action in such grim times is no action. Lanco, which has been aggressive in the power and infrastructure space, is taking it slow these days. “Today, we are not aggressively looking at pursuing new opportunities in power,’’ says Executive Chairman L. Madhusudhan Rao.

E. Sudhir Reddy, Chairman, IVRCL
E. Sudhir Reddy
E. Sudhir Reddy, Chairman, IVRCL

Projects in the works:
Three roads, one in Punjab and two in Tamil Nadu; also a 100 millionlitres-per-day desalination plant in TN

Total cost: Rs 1,600 crore

Funds still to be raised: NIL

Status: Financial closure done, construction under way; has had a marginal rise in costs due to rise in prices of commodities like Bitumen and due to delays in getting right of way etc. Considers the project to be on-track

With no dollars available internationally and liquidity tight within the country, these are tough times for India’s infrastructure players, especially for the BOT brigade who are typically into long-gestation projects that require huge funds. “We are seeing that the situation overseas has become tight and most companies are having to resort to domestic financing, where again the liquidity has become very tight as of now. So, many are going to find it difficult to achieve financial closure,’’ says Satyam Agarwal, Senior Analyst (Engineering, Infrastructure and Utilities) at Motilal Oswal Securities. How badly these companies will be hit, he adds, will vary from company to company, and project to project. Overall, however, two factors will decide their fate—the financial muscle of the promoters and the progress of the project so far. Alluri Ranga Raju is one promoter with the financial muscle. But the Managing Director of the over Rs 3,500 crore-Nagarjuna Construction Company has yet to reach financial closure for a port project he is implementing along with Maytas

Infra in Machilipatnam in Andhra Pradesh. The promoters have still to raise Rs 1,000-1,200 crore in debt for the Rs 1,650 crore venture. In the short term, that appears a huge challenge. “The liquidity condition is still tight and we will need to watch for another two or three months,” shrugs Ranga Raju. Maytas infra, however, has also to raise debt for its other major project. Maytas-led consortium has just bagged the Rs 12,000 crore metro rail project in Hyderabad. “Though in the current scenario, the liquidity situation looks tight, we think this is temporary in nature. For the metro rail project, we are confident of achieving the financial closure in six to nine months,” says B. Teja Raju, Vice Chairman, Maytas Infrastructure. “Right now we are working on things that need to be done before that, which is getting the designs and alignment finalised and coming out with EPC will decide their fate—the financial muscle of the promoters and the progress of the project so far.

G.V.K. Reddy, Chairman, GVK Power & Infrastructure
G.V.K. Reddy
G.V.K. Reddy, Chairman, GVK Power & Infrastructure

Projects in the works:
Govindwal Saheb coal-based 540 MW power unit; and a 3,180-acre Special Economic Zone in Chennai

Total cost: Rs 3,000 crore for the power plant; and Rs 800 crore for the SEZ

Funds still to be raised: Debt of Rs 2,400 crore for power; roughly Rs 500 crore in debt for the SEZ

Status: Financial closure yet to be done

Alluri Ranga Raju is one promoter with the financial muscle. But the Managing Director of the over Rs 3,500 crore-Nagarjuna Construction Company has yet to reach financial closure for a port project he is implementing along with Maytas Infra in Machilipatnam in Andhra Pradesh. The promoters have still to raise Rs 1,000-1,200 crore in debt for the Rs 1,650 crore venture. In the short term, that appears a huge challenge. “The liquidity condition is still tight and we will need to watch for another two or three months,” shrugs Ranga Raju. Maytas infra, however, has also to raise debt for its other major project. Maytas-led consortium has just bagged the Rs 12,000 crore metro rail project in Hyderabad. “Though in the current scenario, the liquidity situation looks tight, we think this is temporary in nature. For the metro rail project, we are confident of achieving the financial closure in six to nine months,” says B. Teja Raju, Vice Chairman, Maytas Infrastructure. “Right now we are working on things that need to be done before that, which is getting the designs and alignment finalised and coming out with EPC packages to finalise the contract,” he says.

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