Jaypee Mahasale: Debt of woes

Jaiprakash Associates is looking for buyers to sell its assets to pare debt. A report…

The group that brought Formula One to the country is now looking for a formula to revive its sagging fortunes. Jaiprakash Associates Ltd, with interests in engineering and construction, power, cement, real estate, hospitality, sports; instrumental in organising two successful F1 races; the developer of the Greater Noida-Agra Yamuna Expressway, is looking to sell a cement factory, a thermal power plant, some of its real estate assets, and a part of its stake in the Expressway. Reports indicate that it intends to sell Rs 10,000 crore assets in 2014-15 to cut debt, after divesting assets totalling Rs 15,000 crore in the six months ending 31 March.

While refusing to comment on the asset sale move, industry analysts identify two trends that have come through over the last decade. First, real estate values have gone through the roof. Secondly, over the last three-four years, the economy hasn't done well, and firms are in trouble over the debt they have taken three-four years ago. “In 2009 when the Congress government came in, there were expectations over policy changes etc. Many firms were looking to expand and they took a lot of leverage and debt in their books. That didn't happen and instead of growing the economy de-grew and the rate of growth slowed down significantly,” shares Ambar Maheshwari, Managing Director – Corporate Finance, JLL India.

So, on one end, you have a lot of corporates sitting on a whole amount of debt in their books where servicing is becoming a challenge and on the other end, some corporates are also sitting on very high value land assets or real estate assets which have become pretty valuable. So selling of assets is a way to unlock capital, which is otherwise limited and which is why we see a whole lot of these corporates coming out and looking at exiting or disposing of these real estate assets.

The move could have both positive as well as negative spin offs. But in the current scenario of negative sentiments, experts see this move as helping the group to gain a positive spin from this move. The sale increases stakeholder value, if the capital is locked up in non-performing assets where you can use this capital to give shareholders and stakeholders a much better return compared to the fact that it's stuck in real estate assets, then you could give a positive spin to it. Analysts exclaim that every single corporate who has talked or followed this strategy, it has made their share prices go up.

A lot will depend upon the kind of order flow these companies will get. “The expectation is that with the stagnated investment coming back to the board and capital expenditure increasing, they might have order flow which will substantially increase their visibility. But it will take time till FY 16 for anything to happen,” says Mayuresh Joshi, VP – Institution, Angel Broking. He adds that the management has made it clear that it wants the group's consolidated debt to come down through a lot of mechanisms. While the group continues to look out for buyers for its real estate projects, experts believe that chances of getting a buyer who buys them in bulk is less likely to happen.

The group is also historically known for some other historical projects: Sardar Sarovar over the Narmada in Gujarat, Tehri over the Bhagirathi in Uttarakhand, the largest rockfill dam; Nathpa-Jhakri in Himachal Pradesh, the largest underground powerhouse; Indira-Sagar in Madhya Pradesh, the second-largest surface powerhouse. Jaiprakash Gaur, the man behind the group rarely likes to talk about himself and is an equally challenging task to meet the man who is an entrepreneur, and the founder chairman of Jaiprakash Associates, and Jaypee Group of companies. A graduate from IIT Roorkee in civil engineering, shy and quiet Gaur was born in a small village in Uttar Pradesh where his father worked for the British government as an agriculture inspector.

In the year 1958 he started his own venture as a civil contractor with a mere Rs 10,000. Gaur's appetite for taking risks led to a falling out with his partners, and he regrouped under Jaiprakash Associates in 1969 with six new partners, including his younger brother and brother-in-law; they remain shareholders. Jaypee Group was founded in the year 1972 which is under his chairmanship and is an established group. In 1979 the company got its first overseas contracts, for $112 million, to build sewerage systems in Iraq. It was his conviction that hydel power is the cheapest and most suited source of power for India that led to the growth of the company. The commissioning of Baspa-II project in Himachal Pradesh brought about a paradigm shift in the country's power sector and encouraged more private sector players to enter the sector. It was also the turning point in the short history of the Jaypee Group.