Project execution raised debt, may refinance: Gammon Infra

CARE rating agency downgraded Gammon Infra  NCDs from A+ to A.

In an interview to CNBC-TV18, Parag Parikh, ED & CFO, Gammon Infrastructure spoke about the new projects of the company and how their execution has increased the debt levels. He also clarifies that the standalone debt of the company is quite low as compared to the consolidated debt.

"On the standalone, debt levels are quite low for our company. It is more on the consolidated debt that reads at Rs 3,200 crore moving to Rs 3,600 crore. These are project finance debts, so there is hardly any recourse to the holding company," he adds.

Below is an edited transcript of Parag Parikh's interview on CNBC-TV18.

Q: What really is the debt position? We know that your total debt increased from Rs 3,200 crore as on FY12 end to Rs 3,600 crore now, the consolidated debt as of September 30. What kind of pressures does it cast on the P&L?

A: The debt position of Rs 3,200 crore going up to Rs 3,600 crore is merely in terms of projects which are under execution or under operations wherein drawdowns are being made from time to time as the project progresses. So, when you look at higher levels of debt especially for projects under execution, we are correlating that there is progress happening on projects at execution.

The NCD rating that we have is at A. It is a rating that we have obtained and kept. We have not gone to the NCD markets for raising any money against these bonds. We have kept these ratings from time to time if we were to ever avail it. On the standalone, debt levels are quite low for our company. It is more on the consolidated debt that reads at Rs 3,200 crore moving to Rs 3,600 crore. These are project finance debts, so there is hardly any recourse to the holding company.

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Q: Wanted an update on Indira Container Terminal Private Limited. There is an expectation that you might sell the stake, considering that contact agreement has lapsed. Just take us through the details and whether you would be looking to pare off some amount of stake there?

A: This is one of the initial bulk terminals awarded to Gammon. It has now been more than seven years that the project is operational. We have two births and both births together are in the range of 6-6.5 million tonnes per annum. So it is an operational project. We are also looking at expanding a little bit of capacity by buying more storage capacity on the backyard that enables the project to grow further.

Yes, we are evaluating options of possible stake sells or divestments into the asset and that is merely to raise some money which can be used and churned again for bidding for newer projects.

Q: How much have your interest costs climbed? We know that in your standalone company your interest costs did climb. YoY it almost doubled from Rs 5.4 crore to Rs 9.36 crore. What kind of full year interest costs are you expecting for Gammon Infra and for the consolidated entity?

A: For Gammon Infrastructure the interest cost that you see more towards the second quarter continues to remain and slightly rise from thereon. One will need to see where these interest costs are coming from. We have also been looking at possible securitization of assets and the surpluses which are lying into these Special Purpose Vehicles (SPVs). These vehicles are being provided to the holding company for investing in other projects. So whilst you see an interest cost higher, a large part of this is merely coming from our group companies, our own SPVs where there is surplus lying and is lent to the holding company. That is where one must look at from an interest cost perspective.

On the consolidated debt, clearly projects will continue to progress this year. We have a few projects which are in advance stages of completion as well as nearly five plus projects which have come up recently and being awarded. Debts will get raised over these projects and therefore absolute numbers will go up. It is considerably healthy it gives us a sense of how projects are progressing over a period of time.