India energy group GVK Power & Infrastructure last weekend reported its year-to-March 2016 results, detailing its fourth consecutive annual loss, but it’s most telling component is the information it did not provide.
Its accounts make no mention of the Alpha, Alpha West and Kevin’s Corner coal mines and associated infrastructure proposal for the Galilee Basinin northern Australia —projects GVK has long been promoting, and which it bought its controlling share from the Hancock group.
The company is in financial distress. Net debt increased US$435 million to a record high of US$3.5 billion. In contrast, shareholders equity shrank 30 percent year on year to US$202 million. Earnings Before Interest and Tax (EBIT) covered just 36 percent of the US$321m of net interest expense for 2015-16.
Into its sixth year, the Alpha project has made no measurable progress, and financial close remains elusive and distant while the coal market is as structurally challenged as ever.
With India Energy Minister Piyush Goyal remaining committed to the target for India to aggressively cut thermal coal imports, any strategic merit of this proposal for India has lapsed. Consistent with this, NTPC Ltd this month reiterated its plans to cease thermal coal imports in the current 2016-17 year.
The slump in the book value of shareholders means net debt is 17 times equity, and that is before any impairment of the highly financially leveraged and stranded Alpha coal proposal in Queensland. The results make no mention of this off-balance-sheet US$1 billion-plus investment that is entirely debt funded.
- Earnings before interest and tax (EBIT) grew an impressive 538% year on year to US$116 million. This reflected the additional contribution from the newly commissioned 330MW Aleknanda hydro project and the Deoli-Kota expressway. Strong revenue growth was reported across the airport and expressway operations of GVK, but here the good news ends.
- Net interest expense grew 54 percent year on year to US$321 million, almost triple GVK’s consolidated EBIT.
- As a result of extreme financial leverage, GVK reported a net loss of US$139 million for 2015/16 (losing US$61 million in the fourth quarter alone).
- Net debt increased US$435 million over the fiscal year to a record high US$3.54 billion. (The Reserve Bank of India is aggressively pushing Indian banks to force financially distressed conglomerates to divest assets and repay loans that are clogging the Indian banking system.)
Tim Buckley is IEEFA’s director of energy finance studies, Australasia.