CG Power seeks up to 2 years moratorium on loan repayments
“Under SBI’s leadership, once the company gets some priority funds and restoration of existing lines of credit, the operations can get to full swing,” Seshadri said. “We need to understand one thing here. This is a case of fraud on the company and...
“We intend to pay back every penny of all legitimate loans. We just need time to revive the company. We have sought a moratorium of around 18-24 months to repay loans that the company is falling behind on,” he said.
Working capital providers and lenders such as State Bank of India, Bank of Maharashtra, Yes Bank, Axis Bank, IndusInd Bank and others are hugely supportive, he said.
“Under SBI’s leadership, once the company gets some priority funds and restoration of existing lines of credit, the operations can get to full swing,” Seshadri said. “We need to understand one thing here. This is a case of fraud on the company and not by the company. Money was taken out of a healthy company that was generating close to 300-400 crore of Ebitda (earnings before interest, taxes, depreciation and amortisation) for consecutive years.”
According to him, the board is concentrating on three broad areas to revive the company – getting lenders to help with short-term funds, talking with institutional investors to pump in capital and building up the top management team.
The company’s equity investors – mutual funds, KKR, L&T Finance, Sunil Bharti Mittal Holdings and special situation funds, among others, have been approached to invest incremental equity in the company.
“Our investment bankers are talking to potential equity investors and we have a positive feedback from there, and we will look at issuing fresh equity and raise funds for the company,” said Seshadri, who also sits on the board of AstraZeneca Pharma, PI Industries and Magma Fincorp. “Our shareholders, too, have been very supportive… they have lost value. But they also understand that the business has huge potential. We need to safeguard shareholder value.”
Investors such as Sunil Mittal continue to show support for the business despite the fraud-led loss, he said.
“People like Mittal are keen to build businesses for the long term and do not take a short-term view,” Seshadri said.
Mittal’s SBM Holdings has an 8.3% stake in CG Power.
The board-monitored exercise to raise capital is already underway. The company is looking at selling land in suburban Mumbai’s Kanjurmarg to raise 490 crore, while the CG House in Mumbai is estimated to fetch about 220 crore.
“We hope to raise capital from existing and new investors,” Seshadri said. The plan is to create liquidity of 1,200-1,600 crore.
Seshadri said the financials are so intertwined and complicated that the board has to get down to micro issues to save costs. “The royalty to Avantha Group as a percentage of turnover has been stopped, leading to almost 75 crore in savings per year,” he said. “Such small efforts add up to a lot of savings eventually.”
In August, the board of CG Power said it will restate accounts after discovering “significant accounting irregularities” and governance lapses. Gautam Thapar, the promoter and chairman, was removed by the board and efforts are on to deleverage the company, sell non-core assets and restart and optimise operations.
To understand the extent of fraud, three independent forensic audits have been commissioned by the SBI, Reserve Bank of India and the board.
“The entire liquidity of the company was sucked out. Our efforts are on to pump in liquidity in the company,” Seshadri said. SBI Caps, the investment banking arm of SBI, is helping the lenders with a corrective action plan.
Based on the findings of the forensic audits, the board will decide whether to press recovery and other charges against some individuals, but it’s too early to predict how things will pan out, Seshadri said.
The other task is to find the right talent to manage the company after the top deck of the company was asked to leave following the fraud.