HCC Jumps 14% After Completion Of Debt Resolution Plan

Shares of Hindustan Construction Co. Ltd. rose the most in nine months after the company said it has successfully completed its debt resolution plan with 23 banks and financial institutions on Monday.

The deleveraging exercise will reduce the debt on HCC's books to Rs 3,575 crore, saving around Rs 400 crore annually in interest payments, along with a comfortable and back-ended principal repayment over 10 years.

"This structure will allow HCC to focus on growth by increasing its liquidity and internal cash flow generation. Another source of capital for operations and growth are HCC’s various non-core assets, which will be realised at the appropriate time and will further be used for prepayment of any remaining HCC debt," the company said in a statement.

The delay in implementation of the debt resolution plan, partly due to the pandemic, resulted in an interim freeze on HCC’s working capital limits for over two years.

Under the debt resolution plan, HCC transferred Rs 2,854 crore of lenders’ liability along with beneficial economic interest in arbitration awards and claims of Rs 6,508 crore as consideration to a special purpose vehicle. The SPV will have an external investor controlling at least 51% and HCC holding balance shares.

"The SPV debt is significantly over-collateralised and is expected to be fully serviced from its own receivables. The underlying arbitration awards also carry interest, which comfortably cover any accrued interest on SPV debt," the company said.

Upon repayment of SPV liabilities, HCC will have the right to receive surplus cash flows as a separate transaction, from realisation of awards and claims, which are expected to be of significant value.

There is no debt-servicing obligation on the SPV for the next four years. The repayments are back-ended from FY27 to FY31, providing time to the SPV to realise cash from its over-collateralised awards and claims asset base, HCC said.

"This milestone gives us the freedom to focus on building our business with renewed confidence, by addressing a fundamental legacy issues relating to delayed arbitration payments," Vice Chairman Arjun Dhawan said. "The resolution plan not only addresses the debt availed by HCC but also provides for resolution of HCC’s guarantee obligations in relation to Lavasa’s debt."

Shares of the Mumbai-based firm gained as much as 19.6%, the most since Dec. 8, to Rs 14.6 apiece.

(Corrects an earlier version that misstated Dhawan's first name.)