Firm has halved its debt by selling stake in two projects, but is still at unsustainable levels
Saddled with a debt of more than Rs13,000 crore even after nearly halving its dues, the Gujarat government-owned Gujarat State Petroleum Corporation (GSPC) is holding talks with banks for restructuring of loans.
A senior government official said that GSPC had borrowed the funds, most of them in the form of long-term loans, from various banks, at an average interest rate of 9.5-10%. "For a company of GSPC's size, the sustainable debt level would be Rs6-7,000 crore at the most, but its loans are almost double at over Rs13,000 crore. Though GSPC has managed to service the loans so far, the high debt level is clearly unsustainable. This is why we are in talks with the lender banks to restructure loans by lowering interest rates and also extending the repayment period. This will give some breathing space to GSPC," the official said, on condition of anonymity.
The official explained that a reduction of even 1 per cent in the interest rate would lower GSPC's interest outgo by more than Rs110-120 crore.
Until some time ago, GSPC's debt had ballooned to more than Rs25,000 crore. This was mainly because of the debt taken to fund development work in its Deen Dayal West gas block in KG basin, and investing heavily in some foreign blocks.
GSPC has since exited all overseas blocks, writing off more than Rs2,000 crore spent on these blocks in the process.
Failing to produce much gas from KG basin even after spending in excess of Rs23,000 over the course of a decade, GSPC last year sold its 80% stake in the block to ONGC for $1.19 billion (Rs7,738 crore), booking a loss of more than Rs15,000 crore. The deal enabled GSPC to lower its debt to around Rs16,500 crore. In March, GSPC sold its 28.40% stake in city gas retailer Gujarat Gas to its subsidiary GSPL for around Rs3,200 crore. The funds received were repaid to the lenders, further reducing the firm's debt to the current level of Rs13,000 crore.
GSPC had earlier hired SBI Caps to devise a detailed realignment plan to improve its financial and operating performance. The move to exit Gujarat Gas was a part of the business restructuring plan. GSPC also has the option of divesting partial or complete stake in some other projects, but this would mean selling off assets created over several years. At the same time, the markets are not necessarily conducive to such transactions. For instance, GSPC owns a couple of gas-based power projects, a 506-MW plant in Hazira, Surat, and a 700-MW unit in Pipavav, Amreli. However, considering the gas availability situation, GSPC would be hard-pressed to find a buyer, admitted officials.
"Selling projects is not the way out. We have to find a lasting solution. We believe financial restructuring is a step in that direction, and we are working with lenders and the state government for this," said a senior GSPC official, requesting anonymity.
Even as GSPC's exploration bets went wrong, the state-owned firm does have a highly profitable gas trading business. According to officials, GSPC is the largest gas trading company in the country, with average volume of 12.5 million cubic metre per day in 2017-18, which makes "enough profit to service reasonable level of debt."
CURRENT SITUATION
- A government official said GSPC had borrowed the funds, most of them in the form of long-term loans, from various banks, at an average interest rate of 9.5-10%.
- A reduction of even 1% in the interest rate would lower GSPC’s interest outgo by more than Rs110-120 crore.
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