Once a cash-surplus Haryana government undertaking, HSIIDC in dire straits; accumulates Rs 12,000 crore debt
The main reason behind the debt is the borrowings the public sector undertaking made for payments for land it acquired.india Updated: Oct 25, 2017 13:37 IST
Once a cash-surplus undertaking of the state government, the Haryana State Industrial and Infrastructure Development Corporation (HSIIDC) is in the middle of a financial trouble as it has accumulated Rs 12,000 crore debt in less than a decade.
The main reason behind the debt is the borrowings the public sector undertaking made for payments for land it acquired. The corporation’s debt equity ratio is at 8:1 as against the accepted 2:1, showing the magnitude of financial trouble it is facing.
In view of the low-inventory turnover and low-cash inflows, the debt equity ratio has deteriorated and come to the level of 8:1 which is unacceptable to any financial institution or bank.
Moreover, it has received poor response to the allotment of industrial plots, forcing it to contemplate price reduction. “The corporation is facing a severe cash crunch due to low recovery from allottees, low demand for industrial, commercial and institutional plots besides huge liability towards enhanced costs,’’ read an HSIIDC note.
HSIIDC officials did not respond to calls for their comments.
Rs 1,000 crore annual interest burden
Documents accessed by the HT show the corporation which remained cash-rich till the financial year 2010-11 was hit by an annual interest burden of Rs 1,000 crore as a result of huge market borrowings in the last seven years. The servicing of the interest on borrowings has become a serious challenge for the corporation.
Major land acquisitions – IMT Kharkhauda (3,302 acres), Dharuhera (433 acres), Barwala Phase 2 (557 acres), IMT Manesar, Integrated Complex and Railway Sidings (365 acres), Global City interchange (147 acres), Integrated Multi Modal Logistic Hub, Narnaul (1,208 acres) and MRTS project (304 acres) and award of enhanced compensation by the courts meant that the corporation had to resort to borrowings in the form of short and long-term loans and cash credit limit from the banks.
Lopsided equity ratio
“In view of the low-inventory turnover and low-cash inflows, the debt equity ratio has deteriorated and come to the level of 8:1 which is unacceptable to any financial institution or bank. As such, the bankers are reluctant to provide any further financial assistance to the corporation,’’ says a corporation file noting.
So much so that the Punjab and Haryana high court came down heavily on the corporation, ordering it to submit a comprehensive schedule for payment of outstanding amount of enhanced compensation to the tune of Rs 7,200 crore to land owners. The state government on September 18 told the HC that Rs 1,500 crore has been placed at the disposal of the land acquisition collectors for disbursement as compensation to the landowners. “Till date, a sum of Rs 2,431 crores has already been paid to the landowners,’’ the government told the HC.
Borrowing limit increased
The financial mess has made the corporation increase its borrowing limits, primarily aimed at paying the cost of land and enhanced compensation ordered by the courts. Its Board of Directors increased the borrowing limit from Rs 3000 crore to Rs 7500 crore in August 2013. The borrowing limit was further enhanced to Rs 10,000 crore in December 2015 and it was increased to Rs 15,000 crore in March 2017.
That’s not the end of it. The corporation has estimated that its debt will exceed the approved limit of Rs 15,000 crore on account of land acquisition cost and enhanced compensation expenditure. Thus, the board of directors has been requested to increase the corporation’s borrowing powers to Rs 25,000 crore, documents revealed.
Financial implications arising out of development works has not only invited proposal from the Securities and Exchange Board of India (SEBI)-registered merchant banker for appointment as a financial consultant for raising fresh debt of Rs 5000 crore, it has also asked banks, financial institutions, merchant bankers to provide up to Rs 10,000 crore in shortest possible time to ensure HC order compliance.
Figuring it out
The HSIIDC has also informed the high court that it proposes to auction plots worth Rs 5,000 crore by December to generate funds for making outstanding payments. Among other measures, the corporation plans to revise the allotment price of plots in various industrial estates.