Surviving Debt

The GVK Group is taking a host of debt reduction measures even as it tries to look at growth options in the airports business.

- E.Kumar Sharma

In the middle of this year, July 7 to be precise, GVK achieved financial closure for the Navi Mumbai airport project. This is the first new venture it is taking up after a gap of three years, the last being its 5,000 crore Goindwal Sahib thermal power project, which went onstream in April 2016. The apparent reason: The company wanted to focus on debt reduction. “Debt reduction is top priority for us and we are working towards reducing it substantially in the next four to five years,” G.V. Krishna Reddy, the Founder and Chairman of the GVK group, had said early in the year. When BT met him a few months ago and asked him the way ahead, he said, “Every day, I spend at least one hour reviewing this (steps to cut down debt).” Senior company executives see no change in this focus even today.

These efforts are driven by an understanding that overleveraging limits options for growth as interest takes away a large chunk of what you earn. There is also the risk of cash flows not being enough to pay interest, increasing the risk of default and now, under the new Insolvency and Bankruptcy Code, bankruptcy as well.

While the debt reduction strategy is clearly working — the total group debt, 30,000 crore two years ago, is now close to 24,000 crore — so is the plan to sell some good assets and get a good number of stalled projects, especially in the power sector, going. But it’s not that simple.

Why Add Debt?