Perdaman Chemicals and Fertilisers that dragged Lanco Infratech to court over a coal supply pact said that the Australian court has consolidated all claims against the Indian firm. Perdaman seeks USD 3.38 billion in damages from Lanco.
Speaking to CNBC-TV18, Mr J Suresh Kumar CFO of Lanco Group said that there is no change to court proceedings. He is confident that his company will come out clean off the legal tussle.
Mr Kumar however threw open an invitation to Perdaman to settle the case out of court.
Debt-to-equity for Lanco has been above five times for the past 18 months on a consolidated basis. However, Mr Kumar assures that there are no issues with the company’s ability to finance debt.
Below is the edited transcript of the interview.
Q - The Australian Court has consolidated all of Perdaman’s claims against Lanco into a single proceeding, which Perdaman seems to believe favours their case. Would you agree with that assessment?
A - We don’t share the same belief on that matter. It is a matter that we ourselves agreed to that consolidation. So, it doesn't change the status as far as the result is concerned in anyway. So, it’s still a matter that is going to remain in court for a long time I believe and it doesn't change the course of this legal case against us in anyway. We had agreed to it when the matter came up for hearing at the court level and the result is something that is in line with our expectation as well.
Q - So what is the next course of action? When will the next hearing be and is it at all an option for Lanco right now to reach some kind of out of court settlement with Perdaman or is that not on the table?
A - I think that option was there at the inception itself and continues to be there even today. Since it has been decided to pursue it legally by Perdaman, we are also pursuing it legally. There are N number of possibilities, but right now, legal is the only way out because the differences are in the belief of Perdaman. It can be resolved only through legal means, so we will go by that.
Q - The next hearing is apparently in April 2012, between now and then, what kind of developments do you expect?
A - Given the Australian court processes involved, we are going through those protocols for now. Right now, it’s going through a document discovery process which should go right up to April 2012 and then we will counter the statement of claim of Perdaman with our own statements.
My belief is that its going to be a long drawn out process in terms of arguments, cross arguments, submissions, cross submissions…. We are very confident at the same time that we will come out clean and right in our stand.
Q - Your average selling price from the merchant plants was around INR 3.6 per unit in the previous quarter, where do things stand now and do you see any possibilities of fuel supply becoming a problem for your merchant power plants going forward?
A - To answer the second question first, we have not seen anyone reducing fuel supply to any of our plants, particularly the merchant ones. Despite whatever we heard in the media, it has not impacted the plants as such. We continue to see robust volume growth for the merchant plants that we are operating.
Merchant tariffs have also been higher, INR 3.60 is a blended weighted average that you saw in the report in the press release but more or less, it’s around averaging around INR 4 year to date till September. If you see the current quarter of December, Merchant prices are very elevated they are upwards of INR 4 to INR 4.5. It is quite distinct from what it was a year back around the same time. So, clearly there are demand pushed impacts on tariffs. We are seeing it at a pretty elevated levels on a year on year comparison and there are no fuel supply concerns today.
Q - The size of the damage that is being sought by Perdaman so much consternation around your stock, have you made any provisions at all going into next year?
A - We are leveraged in interest cost and debt, but as I said earlier, it is a pretty normal situation for us. Debt-equity has been above 5 times for the last 18 months at the consolidated level of Lanco. So we have still been servicing our debt, we have been servicing interest, we have been servicing our repayments and I don’t see any reason why we won’t be able to do it for the next five years.
Let us also appreciate that these are project debts, sitting at project level, non-recourse to the parent, underlying assets are throwing cash; my cash profit for last year where about 1300, this year I am running a reasonable run rate and it should cross even the numbers that we achieved last year. As a CFO, I am not concerned about it as much as the street is. It is very normal for an infrastructure company to have a high debt-equity ratio in the first couple of years of operations.
So be that as it may we do appreciate the concerns and we will raise equity like funds at some point of time. Of course, the markets are not great today but we have a good operating asset portfolio in our books. So we surely will do it at the right time and I am sure investors would appreciate the value at some point.
Q - There is one niggling concern on your Amarkantak project where some brokerages have highlighted that you may have to reverse sales that you are booking today because it is still under dispute and referred back to the regulator; do you see the possibility of that at all?
A - We had already done it in the September quarter. We had adjusted for the disputed billing that we did, but our claim remains because the matter is still pending with the respective courts. From a conservative standpoint, we have not recognised revenue to that extent. So it is not a concern that brokerages should have now because we have already reversed it in the September quarter
Source - CNBC-TV18
