Gammon struggles to turn around
Acquisitions, slowdown put infra major in a spot, with bankers okaying debt restructuring
Dec 11, 2013
Source : Business Standard


MUMBAI: Gammon India is reeling under many issues common to the infrastructure sector in the past two years -- slow progress of projects, payment crises and reduced spending by the government.

It is also undergoing corporate debt restructuring, of Rs 14,814 crore of loans. Slowdown in the power sector has been the primary cause of the breakdown in the payment cycle. Gammon had a number of transmission line projects under the rural electrification scheme. As state electricity boards (SEBs) fell into their own debt crisis, which they are yet to recover from, payments for these projects had dried, too. Two years on, the company has payments pending from the governments of Jharkhand, Chhattisgarh and Uttar Pradesh. Its total of stuck receivables are Rs 2,200 crore.

“A lot of the money is still stuck in rural electrification projects. In the next year or so, we should see things getting streamlined,” Girish Bhat, chief financial officer, told Business Standard. SEBs, themselves victims of slow rises in power rates, have started slowly raising these, after getting permission to do so. This would ease their cash situation, enabling them to pay  vendors such as Gammon.

However, that is a slow process and would take between nine months to a year, the company believes. And, while a large part of its order book remained either unpaid for or stuck in progress, new orders had also dried. “The infra sector got into a lot of trouble due to liquidity crunch. Low growth in gross domestic product has an impact on infrastructure and vice versa,” said Bhat.

In the past two years, various infra projects had almost stopped generating orders. When a few of these did, there was so much competition that Gammon saw little merit in bidding. “The returns were very low,” said Bhat.

On orders, however, Gammon has seen some green shoots. In the past six to nine months, orders have been improving and the company is confident the increased orders will help a turnaround in the next two to three years. Since April, it has bagged fresh orders of around Rs 5,000 crore.

“These (new) orders are not in the power sector. They are in the construction of bridges, water supply and metro rail projects. The hydro sector is also doing well. So, some things are looking good,” said Bhat.The order book is currently at Rs 15,000 crore. Also, bankers of the recast are helping the company by reducing interest rates by around one per cent. They have also given fresh loans, so that they can complete some projects stuck due to cash crunch and to release more payments. The debt recast is spread over 10 years. Apart from slowdown, a few business decisions had also played their part in Gammon’s huge debt. A few years earlier, the company decided to go into real estate and had purchased land tracts in the suburbs of Mumbai, in Dombivili, and in Bhopal. “That had increased our borrowings and added to our interest payments,” Bhat said.

Gammon is now looking to develop all its land banks as soon as possible. It has yet another tract in Andheri, another populated suburb in Mumbai.

Latest Realty News

Inflation, rupee, sliding growth hit commercial property market
Dec 11, 2013
MUMBAI: Sentiment in the Indian occupier and investment real estate markets has been hit on account of deteriorating levels of growth in the economy, continuous fall in the rupee value, high retail inflation and subsequent rise in key policy rates, according to the RICS India Commercial Property Survey Q3 2013.
Why Pune makes a great investment destination
Dec 11, 2013
PUNE: Being one of the fastest growing IT hubs of India, Pune has a cosmopolitan population with good social infrastructure, excellent educational institutes and constantly upgrading physical infrastructure. The city has always been known as the educational capital of India. The infrastructure, financial opportunities and most importantly the climate of Pune make the younger generation want to live here. In addition, its proximity to Mumbai, the financial capital, makes it very convenient to set
Only 7% unsafe buildings conducted audit: Maharashtra CM
Dec 11, 2013
MUMBAI: Chief minister Prithviraj Chavan said on December 10 in the house that out of the six thousand buildings identified for structural audits in Mumbai only 415 had complied with the order. The megacity of Mumbai seems to sitting on hundreds of ‘building bombs’ which may kill residents upon their collapse anytime in future.
Major Indian property markets of Mumbai and Bangalore slip in 2014 ranking: Report
Dec 11, 2013
MUMBAI: Major Indian property markets of Mumbai and Bangalore have slipped further as real estate investment destinations in the Asia-Pacific region, according to a PricewaterhouseCoopers (PwC) report. Mumbai and Bangalore have slipped to the 23rd and 20th positions in the 2014 rankings from 20th and 19th positions, respectively in 2013 survey.
IT units to pay property tax at residential rate
Dec 10, 2013
PUNE: After chief minister Prithviraj Chavan gave assurance of giving rebate in the property tax for Information Technology (IT) units, the standing committee of Pune Municipal Corporation on Monday approved a proposal of charging property tax from upcoming IT industries at residential rates and not commercial rates.
Lodha takes big strides amid gloom
Dec 10, 2013
MUMBAI: Late last month, Mumbai-based Lodha Developers hit the headlines when it announced the acquisition of MacDonald House, an upscale property in one of the most sought-after localities in central London which is near the old US embassy, for close to Rs 3,000 crore (£299 million) from the Canadian government. The 0.67-acre property is located in the heart of the city and houses the Canadian High Commission. Once it is completed, the acquisition will make Lodha Developers the owner of one of
Flat buyers spared service tax on maintenance fee
Dec 10, 2013
MUMBAI: Home buyers have something to look forward to in an otherwise dull property market. The customs, excise and service tax appellate tribunal recently held that they will no longer have to pay service tax on the one-time maintenance charge (deposit) paid to builders at the time of booking a flat.
Investment in Pune property market remains rewarding
Dec 10, 2013
PUNE: What makes Pune such an attractive property investment destination despite the fact that Mumbai, India’s legendary real estate market par excellence, is right next door? A few years ago, the reasons for this were not as obvious as they are today.
Investors of Hirco Plc raise questions against erstwhile bosses
Dec 10, 2013
MUMBAI: Investors of Hirco Plc, a company listed on London's Stock Exchange's sub-market AIM, are raising serious questions against the firm's erstwhile chairman Niranjan Hiranandani and then CEO Priya Hiranandani-Vandrevala.
When and how to buy your dream home
Dec 09, 2013
MUMBAI: Buyers are faced with several dilemmas when they purchase a house. Here are the answers to some of the key doubts:Real estate, though a mainstream investment and probably a part of every financial portfolio, is also unique. It is the single largest financial commitment that most people make in their lifetimes. Buying a property also involves a lot of subjectivity and is not just a factor of the property's price or the interest rate on the home loan. Here are some questions you are likely

Latest Realty News Of State

Realty Talk's