Financial Terrorism : Jaiprakash Associates misses interest payment on bonds

As of October 2015, about Rs49,038 crore worth of credit and loan facilities of Jaypee Group’s three listed entities—Jaypee Infratech, Jaiprakash Power Ventures and Jaiprakash Associates—have a default rating due to delay in servicing of debt obligations.

Debt-laden infrastructure company Jaiprakash Associates Ltd has missed interest payment due on 7 March on its bonds worth $150 million. The interest will be paid later from proceeds of its sale of cement assets, the company said in a statement to BSE on Tuesday. “Interest was payable on the bonds on the semi-annual interest payment date of 7 March 2016. The issuer wishes to inform you that it has not paid such interest. The issuer intends to engage in discussions with holders of the bonds,” the statement said.

The convertible bonds are due for redemption in 2017 and has an interest rate of 5.75%.

The company had on 28 February said that it has entered into a pact with India’s largest cement maker UltraTech Cement Ltd for sale of its assets in six states for an enterprise value of Rs.16,500 crore in a bid to pare its debt.

While the deal is subject to regulatory clearances, it also requires an amendment to the Mines and Minerals Development and Regulation Act, which at present does not allow transfer of mining rights for allotted mines from one company or subsidiary to another.

In the absence of the amendment, Jaiprakash Associates will have to de-merge its non-cement assets and shareholding in group subsidiaries to another company and then execute the deal.

“The deal has some issues with the mining transfer, so one does not know by what time this could be settled. The bondholders do not have any other option than wait, a winding up petition will also take time, and it is wiser for bondholders to wait for a resolution. In the long term, bond holders will be more cautious and careful in future about the borrower’s ability,” said Ajay Manglunia, head of fixed income at Edelweiss Financial Services.

The group has an estimated debt of Rs.75,000 crore as of 31 March 2015, according to a Credit Suisse House of Debt report dated 21 October 2015.

Lenders to the group have been pushing for asset sale to reduce debt.

In September 2015, Jaiprakash Power Ventures Ltd completed a sale of its two hydro assets to JSW Energy Ltd for an enterprise value of Rs.9,200 crore.

The business segments in which the company operates has been adversely affected due to various factors, including a sluggish economy, global economic uncertainties, volatile interest and currency rates, the company said in its statement to BSE. Jaiprakash Associates operates in cement, engineering, real estate and hospitality sectors.

This is not the first time that the group has failed to meet a payment obligation on its bonds. In February, its power subsidiary Jaiprakash Power Ventures Ltd said it may need more time, beyond 13 February, to fulfil its repayment obligation to holders of its $200 million foreign currency convertible bonds.

As of October 2015, about Rs.49,038 crore worth of credit and loan facilities of Jaypee Group’s three listed entities—Jaypee Infratech Ltd, Jaiprakash Power Ventures and Jaiprakash Associates Ltd—have a default rating due to delay in servicing of debt obligations.

On Tuesday, Jaiprakash Associates closed at Rs.7.89 per share, 2.33% higher from its previous close of Rs.7.71 per share.