Last-ditch effort

At a time when construction stocks are buzzing, there is one construction player that is battling for survival. Mumbai-based Patel Engineering, once a favourite on the Street has fallen off investors’ radar after it ran into leverage issues since March 2013. In fact for the past couple of years the stock has underperformed having lost nearly 40% of its value. In 2017, too, it has barely treaded water.

The company has a debt of Rs.2,964 crore and with receivables stuck, it is seeing a asset-liability mismatch. In November 2016, the lenders after invoking the Strategic Debt Restructuring mechanism to convert their loan into equity, have long been on the lookout for a buyer. However, not having found one, the lenders have decided to give another chance to the promoters.

Recently, the consortium agreed to recast Patel Engineering’s debt under S4A (Scheme for Sustainable Structuring of Stressed Assets). Under the scheme, the debt would be categorised into two parts – Rs.1,724 crore as sustainable debt and Rs.1,239.5 crore as unsustainable debt. The unsustainable debt will be converted into optionally convertible debentures (OCDs) with a coupon rate of 0.01% per annum, and yield to maturity (YTM) of 7% per annum with tenor of 10 years. The OCDs will be issued to the company’s lenders through private placement or on preferential basis.

On November 21, Rupen Patel, managing director, through promoter entity Patel Corporation LLP, pledged 1.8 crore shares (worth Rs.147 crore on the transaction date) as security to avail loans that can be infused into the company. The pledge includes the entire 11.89% stake of the promoter entity. Meanwhile, Rupen Patel in his individual capacity holds 0.86% stake, as per shareholding data disclosed for quarter-ending September 2017. As on September 2017, the promoters held 24.77% stake but of that 19.47% is encumbered. This leaves the unencumbered holding at little over 5%. It’s the lending banks that today own 51.94% stake in the company after converting their loan into equity, with government insurer LIC holding 1.4% stake.

In FY17, the company’s topline grew 12% YoY to Rs.2,926 crore and it posted a profit of Rs.41.83 crore against a loss of Rs.18.68 crore in the previous year. As of September 2016, its orderbook stood at Rs.8,000 crore, but since then it hasn’t won any fresh orders. Whether the last-ditch attempt by the promoters will change the course for the beleaguered company remains to be seen.