Who will survive India Inc’s Great Infrastructure Firesale?

Even before the government launches its own disinvestment plans, India Inc has launched its own mother-of-all disinvestments.

From airports to telecom towers to road projects to urban real estate, infrastructure has become too hot for the private sector to handle as most companies are overloaded with debt. Big chunks, or even entire projects and companies, are on the block.

Here’s a sampler of what’s on offer in the firesale.

GMR, the Delhi airport operator which has been accused of obtaining sweetheart deals when the airport was partially privatised, is upto its eyeballs in debt (around Rs 33,600 crore net at last count). It plans to raise Rs 4,000 crore by divesting stakes in highway and infrastructure projects, reportsBusiness Standard.

Larsen & Toubro, which was hoping to raise Rs 2,850 crore through an IPO for its Infrastructure Development Projects arm, is now planning to sell stakes in some of its “port, road, power and metro rail projects to unlock shareholder value,”reports the Hindustan Times, quoting a letter from Chairman AM Naik to shareholders.

Bharti Airtel, which has been reeling under massive debts of $12 billion (Rs 66,000 crore) due to its dicey Zain acquisition in Africa, is planning to offload a stake in its tower business (Bharti Infratel), to raise $750 million, reports The Times of India.

The even more indebted Reliance Communications, which has been threatening to “unlock value” in its tower business for as long as one can remember, announced that it was planning to sell a stake in this arm as well as list its Singapore-based undersea cable business to collect cash.

Anil Ambani’s company has net debts of $6.4 billion (over Rs 35,000 crore) when his company’s market capitalisation is less than one-third that at Rs 10,000-and-odd crore.

IVRCL, says Business Standard, is planning to put six of the 10 road projects it is building on the block so as to retire 20 percent of its Rs 5,000 crore debt. The company’s Chairman and MD E Sudhir Reddy has vowed to steer clear of bidding for new projects till mid-2013 till he brings his debts under control.

The Lanco Infra Group, which owes banks over Rs 29,000 crore under various group companies, has put three of its road projects on sale, reports The Economic Times.

GVK, says another report, is yet again planning to sell a 26 percent stake in its airports company, GVK Airport Holdings, which runs the Mumbai and Bangalore airports, to raise $600-650 million (around Rs 3,300-plus core). The group’s power company, GVK Power, is also planning to sell stakes in its Alpha coal project, port and railway lines in Australia, reports Mint newspaper.

As for realty companies, DLF, the biggest listed realty major of them all, has been on the market every now and then to sell assets and bring down debt. The last big deal involved selling its 17-acre central Mumbai project to Lodha for Rs 2,700-and-odd crore – with very little profit to show after buying the property in 2005. At Firstpost, we had marked it down as a near distress sale.

The next DLF property that will go under the hammer could be Aman Resorts, a luxury resort chain it bought for around $450 million six years ago. Now, it will sell the chain at almost no profit – if the touted price of Rs 1,700 crore minus a key Delhi property is any indication.

Clearly, clearly, debts are killing India’s big infrastructure boys. Now they are planning to kill a part of that debt. After two years of waiting for the skies to clear, they have put many of their assets on the auctioneer’s table.

But if anyone thinks selling is going to be easy, he’s got another thought coming.

As we noted, DLF is not exactly earning top dollar for any of its sales. The idea is to keep pegging away at its Rs 23,000 crore debt pile.

GVK’s 26 percent stake sale in its airport arm has been with M&A merchants for more than a year. Mint reported in 2011 that the deal was close to fruition, and even quoted  Isaac George, CFO of GVK Power and Infrastructure, as saying that term sheets were close to being signed. He said: ““We have term sheets from four private equity players and the due diligence is on. It would take a month or so.”

That was in October 2011. Today, after having the mortification of seeing Changi airport of Singapore walk away from a deal, GVK still has an unsold 26 percent stake in the airport holding company.

Ditto for Anil Ambani’s tower company, which has failed to list for nearly two years now.

But it’s clear where the pressure is coming from: the banks.

Faced with a potential nightmare of bad loans, banks are pushing infrastructure companies to sell stakes and projects to bring down their loan exposures.

According to The Economic Times, the money owed by the top 10 groups to banks is close to Rs 5,40,000 crore – up five-fold in five years. Wonder what the banks’ loan officers were thinking when they allowed this to happen.

The loan nightmare list includes mostly infrastructure companies and groups. The amounts owed are: Essar group (Rs 93,800 crore), Vedanta (Rs 93,500 crore), Reliance (Rs 86,700 crore), Adani (Rs 69,500 crore), Jaypee (Rs 45,400 crore), JSW (Rs 40,200 crore), GMR (Rs 32,900 crore), Lanco (Rs 29,300 crore), Videocon (Rs 27,300 crore) and GVK (Rs 21,000 crore). (All figures from a Credit Suisse report quoted by ET).

Now that their pants are on fire, bankers are forcing infra companies to sell assets any which way they can.

The infra growth story is partly over – for now. “The focus is not on growth anymore,” GBS Raju, GM Rao’s elder son told The Economic Times. “It’s on sweating the assets, increasing cash flows and internal accruals.”

It isn’t the assets alone that will be sweating. Bankers, and half of India Inc too, are sweating in the heat of the downturn. Buyers are wary.

BusinessLine report quotes Madhucon Projects CFO S Vaikunthanathan as admitting that  buyers had the upper hand since they knew companies were under pressure to sell, and bankers were breathing down their backs.

The Great Indian Infrastructure Firesale is on. Not all will emerge from it unsigned.

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