MUMBAI/HYDERABAD: Pushed to the wall with a huge debt pile, Hindustan Construction Company (HCC) has urged lenders to restructure its loans even as it scurries to organise cash by selling non-core assets. The Ajit Gulabchand-led engineering company is just one of a clutch of Indian infrastructure developers whose ambitions of owning BOT (build, operate and transfer) assets-primarily road & highway projects-have backfired on their flagship business of EPC (engineering, procurement and construction).

Whilst HCC's bread and butter has already been thrown out of kilter by mounting debt, other stars of yesterday in the infrastructure space like IVRCL, Nagarjuna Construction Company (NCC) and Gammon Infrastructure also have similar problems, although they may not be as severe as those of HCC.

Five to seven years ago, these EPC firms strode into the BOT space, lured by returns that can be as high as 100% compared to a mere 10% for an EPC contract. But high returns, as in this case, often come with high, if not higher, risks.

"EPC companies became debt-heavy in their quest to become BOT asset owners," says Vinayak Chatterjee, chairman of Feedback Infrastructure, a Delhi-based infrastructure services company. The debt component can be as high as 70% of the project cost. Slow execution of projects, a dwindling order book and high interest rates have aggravated their woes, adds Nitin Arora, a research analyst with city-based Angel Broking. The long-gestation nature of such projects increases the risk - BOT road developers typically breakeven in the four to five years, with toll collection their sole revenue stream.

"The horizon of returns is much further than in the EPC business," says Pawan Agrawal, senior director, CRISIL Ratings. Also, the developer bears project-related risks like regulatory clearances, attaining financial closure, and cost and time overruns. An EPC contractor is not exposed to such risks to the same degree, explains Agrawal.

HCC is a classical example of how an engineering company gets hit by BOT projects. HCC Concessions, the wholly-owned subsidiary that builds roads on a BOT basis, has six such projects that will require a total investment of Rs 5,500 crore. HCC's contribution in the form of equity will be Rs 1,047 crore while the rest will come by way of bank loans.

Three of these six projects are complete. A large portion of HCC's consolidated debt, which stands at Rs 7,382 crore, four and a half times its equity base as on 31 March 201-is courtesy of its BOT projects. Other than the BOT burden, HCC's hill city company Lavasa has an outstanding debt component of Rs 3,300 crore. Two of the three completed BOT road projects are in the red, as per HCC's annual report. An HCC spokesperson declined to comment on the matter.

"HCC needs to repay loans of at least Rs 1,000 crore to breathe easier," says Angel's Arora. Understandably, that's not easy. It's willing to sell a 26% stake in its corporate headquarters, says an official of a lender bank, not wanting to be named. If the deal goes through, it could fetch Rs 300 crore, points out Arora.

The other EPC-to-BOT players have troubles - not too dissimilar - of their own. On April 2, rating agency Fitch downgraded IVRCL's short-term facilities because of doubts about whether the merger of the BOT arm-IVRCL Assets & Holdings (IVRCL A&H)-would lead to an increase in net leverage. IVRCL, which is sitting on a consolidated debt of Rs 4,000 crore, is looking at raising at least Rs 1,000 crore by selling three of its BOT projects. The company had said some months ago that it was open to selling all its infrastructure assets, which included eight projects (both completed and under construction) and five other BOT assets like desalination, sewage treatment, tankages, car-parking and truck-terminal projects.