What Next for Hindustan Construction Company (HCC)?

Hindustan Construction Company (HCC) shares plunge more than 25% after its auditor indicated his doubts on the capacity of the Lavasa Corporation to perform as a going concern. The company gave a clarification to the exchanges, and that was not enough for the bears to hammer the stock. The company’s stock hit a 52-week low during the day’s trading on Thursday after the auditor’s report though it recovered to a little extent. The sharp drop in price is in relation to the debt.

Commitment Reiterated

Hindustan Construction provided clarifications to the exchange and reiterated its commitment to Lavasa. The company pointed out that its subsidiary is working with lenders closely for resolving the debt issue amicably. In a letter to the stock exchanges, the company disclosed that “The Company and all subsidiaries are in complete compliance with all regulatory needs.” The stock market is trading close to the high, and any negative news could spark a significant fall in the stock price. The stock came under pressure once the auditor showed red flags about the debt situation. In the NSE, HCC shares hit a low of Rs.16.85 whereas the BSE saw the low yearly price of Rs.17.20.

The CNBC-TV18 report quoted the auditor report of Lavasa Corporation wherein the statutory authority disclosed that the net worth of Hindustan Construction’s subsidiaries has either fully eroded or significantly eroded. On top of this, the auditor expressed its doubt on the capacity of the subsidiary firm to perform its role as a going concern. The government-controlled banks are already engaged in reducing their non-performing assets (NPAs).

The company’s liabilities have exceeded assets by Rs.2,390 crore. It is for the accounting term that ‘going concern’ is used. This meant that the company should have the required resources to continue to manage operations indefinitely. Also, this suggested that the company has the capacity to generate sufficient money not only to stay afloat but also avoid bankruptcy. If any business is regarded as a not going concern, then it would mean that it has become bankrupt. That would invite liquidation of its assets.

Significantly, the latest auditor report comes on the heels of another report of last month suggesting that the company could approach the National Company Law Tribunal (NCLT). That was primarily because of issues faced in mobilizing funds for project completion. The troubled firm clarified that there was a slowdown in the process after Reserve Bank of India notified insolvency and bankruptcy code (IBC).

Finer Nuances

Lavasa is expecting the central bank to release revised framework on IBC after clarifying on the finer nuances of it. Therefore, the company believes that the process will go slowly. In a statement, the company disclosed that Lavasa is confident of a complete solution for its debt recast. However, that could be done after the revised framework is deliberated to satisfy everyone concerned.

The company indicated that its topmost priority is to protect the interests of every stakeholder. This included home buyers also. The company is involved in a smart city project spreading across 25,000 acres in Maharashtra.

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