L&T to sell stakes from Hyderabad Metro Rail by the end of FY2022-23

Hyderabad, India (Urban Transport News): The major Indian infrastructure firm Larsen & Toubro Ltd (L&T) has unveiled its plan to sell its non-core business to become a zero-debt company, excluding the debt of its non-banking financial arm L&T Finance, by the end of FY2022-23.

"The company has made significant progress in divesting three of its non-core businesses, one of which is the loss-making L&T Metro Rail (Hyderabad). He said that these assets would be moved out of L&T’s balance sheet by the end of the current fiscal," said SN Subrahmanyan, chief executive officer and managing director of Larsen & Toubro Ltd (L&T).

L&T, through subsidiary L&T Metro Rail (Hyderabad) Ltd, built the Rs 18,000-crore project that has a concession period of 35 years, which can be extended. The project was initially delayed due to the right-of-way issues and other approvals, leading to cost overruns. Then the revenue from the project did not match the initial projection and was further hit by the Covid-19 pandemic. This loss-making metro project has weighed on the overall financial performance of L&T Ltd.

“Two factors that were not going well for the project. One, a lot of people were not traveling to the office due to Covid. Traffic had gone down very drastically, now it’s sort of coming back. As we speak, it's about 300,000 people per day. The second issue was the huge debt of nearly Rs 13,000 crores, so there was an interest cost. In our profit and loss account, this project was probably the only loss-making business we have,” he said. 

To overcome the losses, L&T had last year sought financial support from the Telangana government to deal with the financial stress, citing that the losses would make it impossible to continue operations. After much discussion with the state government, the latter has agreed to give the project a soft loan of Rs 3,000 crore which overcome over a period of time. This will be used to repay debt and reduce it to Rs 10,000 crore.

“We have a term sheet with an investor, which I cannot reveal right now because a few conditions precedents are to be overcome. It will be overcome shortly. And if that happens, another Rs 4,000 crores of equity money will come into the project. With this, we will come down from 100 percent to 51 percent,” he added.

Subrahmanyan said that the deal proceeds would be used to pare debt to Rs 6,000 crore.