NEW DELHI: Engineering major Punj LloydBSE 1.56 % is planning to refinance up to Rs 1,400 crore of debt into dollar loans over the next six months to cut costs and soften the impact of a falling rupee, a senior company official has said.
At present, the company's profile of debt, and its business locations are not in harmony. While about 65-70 per cent loans of Punj Lloyd's Rs 5,500 crore debt pile is in rupees, 65-70 per cent of its businesses are outside India.
The mismatch has led to a steep rise in finance costs for the company due to high interest rate regime in India and has made a big dent in its profitability.
"Problem is really the high interest cost. So now we are working on solutions to see how we can offshore some of the debts. There is a complete mismatch between our debt profile and our business," Punj Lloyd's Director (Corporate Affairs) Luv Chhabra said.
In the last five years, Punj Lloyd's interest outgo has risen by more than three and half times to Rs 780.76 crore in 2012-13. It stood at Rs 220.76 crore in 2008-09.
Meanwhile, company's net sales, at Rs 11,408 crore in FY'13, are yet to achieve the peak levels of Rs 11,876 crore which Punj Lloyd had achieved in 2008-09.
"I think in next 3 to 6 months, you will see a significant portion of the rupee debt changing into dollar debt. It is still work in progress but at least USD 200 million, so over Rs 1,200 crore to Rs 1,400 crore debt will shift into a dollar-determined debt," Chhabra said.
This will provide natural hedge to the company as earning money and repayment of debt will be in the same currency only, he said, while noting that dollar loans would also minimise the impact of fall in rupee and high interest rate regime in the country.
"Once that (converting rupee debt into dollar loans) happens on Rs 1,400 crore debt, there is straightaway Rs 50-60 crore savings a year. If there is a 4 per cent saving in interest rates, that will go straight to the bottomline," he said, adding that Punj Lloyd has no plans to go to Corporate Debt Restructuring cell for recasting its loans.
A big challenge before the company currently is to reduce the high levels of short term borrowings (primarily working capital loans), which has more than doubled in last three years.
Adding to the woes of the company, its long-term borrowings have declined by over 11 per cent in the same period.
In 2012-13, the short term borrowings of Punj Lloyd stood at Rs 3,661.45 crore vis-a-vis Rs 1,744.81 crore of 2010-11. On the other hand, the long term borrowings were Rs 1,893.68 crore in the last fiscal against the levels of Rs 2,135.83 crore of 2010-11.
However, Chhabra defended company's policy, saying that at the EBITDA (earnings before interests, taxes, depreciation and amortisation) level, Punj Lloyd has been growing consistently.
"Debt equity ratio is close to 2:1 right now but if you look at the EBITDA level, which really determines the profitability of the projects, the company has consistently been above 9 per cent EBITDA," he said.
Moreover, company has an outstanding dues of about Rs 4,000 crore on various Indian government agencies/PSUs and on some foreign clients and timely payment of this money would further improve company's profitability, he said.
"The debt cost of this Rs 4,000 crore is almost Rs 500 crore. Now you add on Rs 500 crore on the bottom line and you see the picture. So at the EBITDA level, there is no problem," he said.
He, though, accepted that part of this money has been disputed and the company is fighting legal battle on this front.
The problem for Punj Lloyd seems to have started with its UK-based subsidiary Simon Carves Engineering Ltd, which it had acquired in 2006. Subsequently, slump in demand due to poor macro-economic conditions added to its problems.
Punj Lloyd is estimated to have written off about USD 200 million on the company since acquisition. In 2011, it finally put Simon Carves on administration for liquidation in 2011 but its impact has not yet been negated completely.