GVK hit by credit crunch

By Vishwanath Pilla, CNBC-TV18

Rising interest rates and double digit inflation has forced India Inc to tighten its belt. Now, leading infrastructure company GVK says it may defer its projects to tide over the credit crunch.

Inflation cracks Infrastructure

2007 was the year when Hyderabad infrastructure companies like GVK and GMR stole the limelight, this year seems radically different. Rising Inflation has taken the industry by surprise. Infrastructure companies typically have a 5% budgeted contingency plan, and now its escalated to over 20%. Since most of the projects have a fixed tariff, the companies are in for a major hit. Infra major GVK is taking a relook at its project portfolio to optimize capital costs.

A Isaac George, CFO, GVK Power & Infrastructure said, "If there is a possibility of deferring something for later date without actually compromising on the project per say then we should try and do it."

A credit crunch has added to the GVK's woes. That's because 70 to 80% of the project cost is funded through debt. Now banks are wary of the projects they are funding. GVK says it's also looking at financial restructuring of some of its projects.

Isaac George said, "Today interest rates on infrastructure projects which are Greenfield in nature ranges from 11.25 to 12%. Borrowing in dollars is much lower than borrowing in rupees. But unfortunately RBI came with certain norms of ECB. They don't permit you to borrow. But within the rules laid down by guidelines they should look at refinancing option."

It's not just GVK, Hyderabad-based Lanco is looking to cut costs through operational efficiency. With escalating project costs and dipping profitability, Hyderabad infrastructure industry is caught in a catch 22 situation.