HCC to raise Rs 1,750 cr through monetisation of claims

Engineering firm Hindustan Construction Company (HCC) Tuesday signed an agreement with a consortium of investors led by asset management firm BlackRock to monetise an identified pool of arbitration awards and claims for a consideration of Rs 1,750 crore. As per the agreement 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.

"HCC will receive a consideration of Rs 1,750 crore from the SPV, which will be utilised to prepay debt of Rs 1,250 crore, including its entire term loan of Rs 942 crore which is due in the next three years and Rs 308 crore of optionally convertible debentures," the company said in a statement here. The balance Rs 500 crore will be made available to fund working capital and business growth, it said.

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 around Rs 2,000 crore 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 company further said that 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. "This transaction will help unshackle HCC from mismatches in our cash flow caused by prolonged litigation cycles. The company will stand substantially deleveraged as a result, which will bring us towards the end of our financial turnaround process," HCC's director and Group chief executive officer Arjun Dhawan said.

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," the release said.

Earlier this fiscal year, HCC successfully completed its Rs 497.6 crore rights issue which was oversubscribed, resulting in an increase in promoter group shareholding which currently stands at 34.85 percent. HCC shares settled at Rs 15.64 on the BSE, up 9.07 per cent from the previous close..