HCC to raise Rs 17.5 billion through monetisation of claims

01 Apr 2019 CW Team

Debt to reduce by Rs 12.5 billion; Additional liquidity of Rs 5 billion to drive growth

Hindustan Construction Company (HCC) has signed terms with a consortium of investors led by BlackRock, who will seek to monetise an identified pool of arbitration awards and claims for a consideration of Rs 17.5 billion. The proposed transaction was approved by the Board of Directors of the Company at its meeting held on March 26, 2019, and is subject to requisite approvals.

Under the terms of the transaction, HCC will transfer its beneficial interest and rights in an identified portfolio of arbitration awards and claims to a special purpose vehicle (SPV) controlled by a consortium of investors, including BlackRock. HCC will receive a consideration of Rs 17.5 billion from the SPV, which will be utilised to prepay debt of Rs 12.5 billion, including its entire term loan of Rs 9.42 billion which is due in the next three years and Rs 3.08 billion of OCDs. The balance Rs 5 billion will be made available to fund working capital and business growth. Consequently, the balance sheet of HCC would stand substantially deleveraged, with debt servicing over the next four years being limited to its working capital facilities.

As a result of the transaction, the Company expects approximately Rs 20 billion of working capital assets, being a combination of adjudicated awards and lodged claims, to leave its balance sheet, which will result in a partial write down of net worth. The precise amount of write-down will be ascertained in HCC’s year-end accounts and is not expected to impact the Company’s business prospects materially. HCC will continue to retain a material amount of awards and claims with the transaction being limited only to an identified pool of awards and claims. The agreement also envisions a claw back of value by HCC from the SPV in the event that the recovery of Awards and Claims transferred to the SPV exceeds certain thresholds.

Arjun Dhawan, Director & Group CEO, HCC, said, “This unique transaction will help unshackle HCC from mismatches in our cash flow caused by prolonged litigation cycles. HCC will stand substantially deleveraged as a result, which will bring us towards the end of our financial turnaround process.”

The Overseeing Committee (OC) of the Lenders, formed under the aegis of the Inter-Creditor Agreement (ICA) framework executed among Lenders, has reviewed the proposal and requested consortium members to accord their respective approvals. Consummation of the transaction is subject to formal sanctions by Lenders and requisite approvals from the Investors, including the completion of required conditions precedent and final documentation.

Earlier this fiscal year, HCC successfully completed its Rs 4.97 billion Rights Issue which was oversubscribed, resulting in an increase in Promoter Group shareholding which currently stands at 34.85 per cent. HCC has also received formal notification from its Lenders earlier this month that the CDR scheme no longer applies to the Company.

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Debt to reduce by Rs 12.5 billion; Additional liquidity of Rs 5 billion to drive growth Hindustan Construction Company (HCC) has signed terms with a consortium of investors led by BlackRock, who will seek to monetise an identified pool of arbitration awards and claims for a consideration of Rs 17.5 billion. The proposed transaction was approved by the Board of Directors of the Company at its meeting held on March 26, 2019, and is subject to requisite approvals. Under the terms of the transaction, HCC will transfer its beneficial interest and rights in an identified portfolio of arbitration awards and claims to a special purpose vehicle (SPV) controlled by a consortium of investors, including BlackRock. HCC will receive a consideration of Rs 17.5 billion from the SPV, which will be utilised to prepay debt of Rs 12.5 billion, including its entire term loan of Rs 9.42 billion which is due in the next three years and Rs 3.08 billion of OCDs. The balance Rs 5 billion will be made available to fund working capital and business growth. Consequently, the balance sheet of HCC would stand substantially deleveraged, with debt servicing over the next four years being limited to its working capital facilities. As a result of the transaction, the Company expects approximately Rs 20 billion of working capital assets, being a combination of adjudicated awards and lodged claims, to leave its balance sheet, which will result in a partial write down of net worth. The precise amount of write-down will be ascertained in HCC’s year-end accounts and is not expected to impact the Company’s business prospects materially. HCC will continue to retain a material amount of awards and claims with the transaction being limited only to an identified pool of awards and claims. The agreement also envisions a claw back of value by HCC from the SPV in the event that the recovery of Awards and Claims transferred to the SPV exceeds certain thresholds. Arjun Dhawan, Director & Group CEO, HCC, said, “This unique transaction will help unshackle HCC from mismatches in our cash flow caused by prolonged litigation cycles. HCC will stand substantially deleveraged as a result, which will bring us towards the end of our financial turnaround process.” The Overseeing Committee (OC) of the Lenders, formed under the aegis of the Inter-Creditor Agreement (ICA) framework executed among Lenders, has reviewed the proposal and requested consortium members to accord their respective approvals. Consummation of the transaction is subject to formal sanctions by Lenders and requisite approvals from the Investors, including the completion of required conditions precedent and final documentation. Earlier this fiscal year, HCC successfully completed its Rs 4.97 billion Rights Issue which was oversubscribed, resulting in an increase in Promoter Group shareholding which currently stands at 34.85 per cent. HCC has also received formal notification from its Lenders earlier this month that the CDR scheme no longer applies to the Company.

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