Financial Daily from THE HINDU group of publications
Thursday, Sep 19, 2002
KEC International embarks on debt recast
HYDERABAD, Sept. 18
KEC International Ltd, the Rs 500-crore power transmission line projects company belonging to the R.P. Goenka group, which had suffered a serious setback in its performance during the last couple of years, has embarked upon a major capital and debt-restructuring programme aimed at early revival.
Despite the steep fall in revenues from Rs 1,000 crore in 1999-2000 to Rs 499.79 crore in 2001-02, the book debt level has not come down proportionately owing to the nature of terms of payment of the contracts in the power transmission industry. The dip in turnover resulted in significant under absorption of fixed cost and in consequent losses.
According to the KEC officials, there were large value payments linked with completion of the contract and maintenance period. Such debts related to higher turnover level of the prior years would get paid only with completion and fulfilment of contracted obligations. As a result, the company currently has a high level of book debts vis-a-vis turnover.
Aimed at coming back into profits, the company appointed Lazard India Ltd as advisors. Following the detailed recommendations of Lazard, the company embarked upon the capital restructuring process.
As a part of this, KEC proposes to utilise funds from the share premium account to the tune of Rs 126.29 crore for the purpose of setting off the balance in miscellaneous expenditure account representing expenditure incurred a few years back on voluntary separation scheme, certain other deferred revenue expenditure and diminution in value of assets.
While the KEC board has approved a resolution to this effect recently, the share premium adjustment is, however, subject to the confirmation by the Mumbai High Court. In the meantime, the board has resolved to seek the consent of shareholders at the annual general meeting.
In a communiqué to the shareholders, the company said the capital restructuring exercise would not cause any prejudice to the creditors of the company. The reduction of capital does not involve either the diminution of any liability in respect of unpaid capital or the payment of any shareholder of any paid-up capital.
"The creditors of the company are in no way affected by the proposed restructuring of the share capital as there is no reduction in the amount payable to any of the creditors, no compromise or arrangement is contemplated with the creditors and also there is no significant reduction in the security which the creditors may have in the assets of the company. In any way, the asset cover ratio as covenanted by the company in various agreements with secured lenders would continue to be maintained even after the proposed restructuring."
Further, aimed at turning around the fortunes, the company initiated several measures, the significant of them include, securing overseas projects worth over Rs 900 crore financed by the multilateral agencies such as UNDP and European Investment Bank, signing the construction management agreement with the Madhya Pradesh State Electricity Board, closure of unproductive offices and sale of surplus properties.
Apart from working back-to-back payment arrangements with some of the suppliers to ensure reduction in block-up of own funds, the company also stepped up recovery measures. One of the successes attained was securing an International Arbitration Award and receiving payment of Rs 42 crore blocked-up for more than three years.
KEC also informed its shareholders that it had embarked upon a debt restructuring exercise with the objective of bringing down the overall financing cost and improving cash flow.
As on March 31, 2002, the company's accumulated losses stood at Rs 109.67 crore on an equity base of Rs 50.51 crore and reserves and surplus of Rs 164.63 crore.
While the secured loans amounted to Rs 588.34 crore, unsecured loans stood at Rs 134.2 crore. The interest burden during the last fiscal amounted to Rs 50.07 crore.
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