Bayern Munich post record financial results

Bayern Munich has posted the best financial results in the clubs history, breaking 100 million euro in operating profits for the first time in 115 years. The clubs overall operating company confirmed turnover at 523.7 million euro,
down on the previous year as a result of no Super Cup or Intercontinental Cup matches

But the impressive numbers were in Bayerns pre-tax operating figures, which amounted to 111.3 million euro and record profits of 23.8 million for the last year. The club is spending 227.3 million euro on player salaries and shelled out over 60 million on transfers this season.

Today, Bayern stands as both athletically and economically outstanding, said financial director Jan-Christian Dreesen. Increasing our financial strength was our primary objective, regularly making the necessary investments in the professional squad to continue to make the steps to compete at the top level of European football.

Maximum sports success with economic stability – that is our maxim.

If you don’t like your financial past, create a new one

Question: I have totally screwed up my financial life. Where do I start? Overspending, maxed out credit cards, a bankruptcy. I mean it’s bad. I just woke up one day and I had dug myself into this incredible hole. But now I want to get out and I really don’t know how. Is it even possible?

Answer: Sounds bad. Very bad.

Is it possible? Yes. Easy? No.

Let’s start with something I heard consultant Wayne Cotton say, “If you don’t like your past, fix your present and you’ll have a new past in your future. Just clean-slate it and build a new past by building your present properly.”

That’s not just cute verbiage. It is profound advice.

Anyone with a traumatic past (self-induced or not) can become fixated on that past, to the detriment of both their present and their future. Our unconscious selves may even demand a prison term of forced regret to pay for our past financial sins. The problem is no one ever told your unconscious self just how long this season of sorrow is supposed to last. So let’s try this instead…

Recruit a partner or coach. You’re about to go on a long journey, much of it retracing the steps of how you got here, in order to create your new past. Most of us will need help with both direction and determination. You’re going to need to get someone in your life, either professionally or relationally, that is 100 percent for you and will help you stay on course.

Look at the past one last time…to learn. You get one last shot to talk and think a lot about what you did wrong. Only this time, you and your coach are going to leave off the blame game. This post-mortem process is solely for the purpose of learning what you did wrong so we don’t repeat that same mistake in the future.

Give yourself permission to move on. Once you’ve looked back to learn, leave it. Leave your past to the past and give yourself permission to move on. You may need to seek forgiveness from others you have hurt. Do it and it will no longer have such power over you.

Stop the bleeding by fixing urgent problems. Personal finance 101 says you’ve got to spend less than you make. You and your coach will have to work on a plan to lower your expenses, stabilize (or even increase) your income and get your bills paid on time. You may have to work out payment plans with creditors, sell assets or work overtime. But don’t just start doing one of those things — you do the right combination of them as set forth in your plan.

Start to grow by focusing on important priorities. Once you’ve begun your “crisis containment program,” you need to take the actions that will prevent future crisis and foster future opportunities. That will include protecting yourself, starting to save, then starting to invest, staying on track and consistently re-calibrating in light of changing circumstances. This is the proactive and healthy stage you’ll want to be in for a long time.

Stay consistent by simply not stopping… no matter what. Stuff is going to happen. The perfection of your plan on paper is never going to happen just like that in real life. So what? Do not get discouraged and quit. Not allowed. That’s the main reason for recruiting a coach. When the wheels fall off, but them back on and keep driving. Perfection is not your goal – just persistence.

I’m sorry for the struggles you’ve had in your past. But other than what I’ve mentioned above, let’s forget about your past and focus on creating a new past in your future… by fixing your present.

Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at bmoore@argentadvisors.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5800. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc. No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.

Blues take financial hit

CARLTON has posted its second straight financial loss, falling further behind rivals Collingwood and Richmond with a loss of $0.9 million for the financial year ending October 31.

The Magpies this week announced an operating profit of more than $1.8 million, while Richmond recorded a profit of $459,000 despite a significant increase in its football department spending.

The Blues, who have posted losses in three of the past four years, released a statement on Saturday afternoon, noting 2015 had been one of the clubs most challenging years.

The costs associated with player injury payments and restructuring the football and administration departments were cited as reasons for the poor result, which followed last years $1.6 million loss.

The Blues also highlighted a drop in attendances as the team finished on the bottom of the ladder with only four wins for the season.

Aside from our win-loss record there are other factors that led to this result, president Mark LoGiudice said.

Our management team is committed to returning Carlton to a financial surplus during 2016, this will be through strong cost control and growing traditional and non-traditional revenue streams.

We have recently announced the signing of CareerOne, who join Hyundai as our joint major partners, while we have initiated a review of Ikon Park and will next year release an exciting master plan to ensure its future.

Carlton does not receive special AFL funding distributions and paid an equalisation tax of $250,000 in 2015, which will increase to $330,000 next year.

Linn Energy’s Brilliant $1 Billion Vanishing Act

After the market closed on November 13th, Linn Energy (NASDAQ:LINE) / LinnCo (NASDAQ:LNCO) made a major announcement that should be bullish for shareholders of the business moving forward. While the company does have a great deal of debt on its books and this will prove problematic if management cannot reduce debt further, the businesss debt swap will take the edge off of some of its issues and ultimately increase its probability of surviving moving forward.

Linns debt situation isnt good

Really the only negative aspect of Linn at this moment is the fact that, as of the end of its most recent fiscal quarter, the company had long-term debt on hand of $10.03 billion. While this would be nothing to a larger player in the energy space like Exxon Mobil (NYSE:XOM) or Chevron (NYSE:CVX), its extremely large for a company with a book value of equity of $2.19 billion and a market value of $805.94 million. The fact of the matter is that, at current energy prices, Linn is bankrupt if all of its hedges were to disappear tomorrow.

In the table above, you can see the total value of all of the companys long-term debt, which begins coming due in 2019 and goes through 2022. In general, this is a period that is far enough away that we dont need to worry about principal repayments right now but the one area that is concerning is the businesss exposure to credit facility redeterminations. At this moment, the company has $3.48 billion in credit facility debt and another $500 million in the form of a term loan, any and all of which could, in theory, be called in any six-month period. Fortunately, because of what happened during its most recent redetermination in October, Linn has some space between now and its next round of talks in April and it has excess lending capacity on its combined facilities of $790 million.

The debt swap made things better

Recognizing that things need to change and that equity holders do not want to be harmed further than they already have been, Linn was able to strike up a deal with some of its current bondholders. According to a press release issued by the company, it was able to trade $1 billion in Second Lien Notes with a maturity of 2020 and an interest rate of 12% for $2 billion in Senior Notes (unsecured). In the image below, you can see that the move reduced debt maturities in multiple years but that nearly $1.41 billion of the debt swapped out was due to expire in 2019. As a result of this, the companys total long-term debt outstanding has dropped from $10.03 billion to $9.03 billion.

(click to enlarge)

By adding up the changes in interest expense due with the different debt categories, we can see that this debt swap is also favorable from an annual expense perspective as well. Based on the data provided, the transaction will reduce interest expense by about $16.26 million. Although the move is not as large or on as favorable terms as I would have liked, Linns approach does allow it the ability to issue up to $500 million more worth of Second Lien Notes in exchange for outstanding Senior Notes, which could, on identical terms, reduce indebtedness by another $500 million and interest expense by over $8 million per year. Even without this approach and assuming a 15% drop in output next year, the company should generate cash flow in 2016 of $501.17 million as you can see in the image below.

(click to enlarge)

What needs to be done moving forward

Right now, Linn has cash on hand totaling $344.81 million and the company expects to generate cash flow for its fourth quarter this year of $149 million. If management elects to keep just $1.8 million of this cash on hand (the same amount that was kept on during the fourth quarter last year) and allocate the rest of its cash (including projected cash flow this quarter) toward buying back Senior Notes (focusing on those with the highest yield-to-maturity), then the business could buy back an extra $1.86 billion worth of long-term debt by the end of this year at current prices. This strategy would result in interest expense falling by an extra $132.62 million per year.

This strategy assumes that all debt can be repurchased at these levels, something that is unlikely given that some investors will hold out and that buybacks will push debt prices up to some extent. To account for this, Im assuming that the debt repurchased (which is priced at $0.2644 on the dollar in my example) is bought back at $0.35 on the dollar instead. This would result (again, using debt with the highest yield-to-maturity) in interest expense falling by $93.35 million next year, pushing cash flow for the year up to $594.52 million.

(click to enlarge)

Unless oil prices fall materially lower than they are today, I have a hard time believing that Linns credit facility could fall by more than the $790 million it has on hand today but any drop would likely give the company six months to come up with any shortfall so, from the start of next year through the end of that window, management could likely generate $445.89 million in excess cash to use toward debt reduction before any sort of default-style event would transpire. In short, this means that the credit facility would have to be cut by around $1.24 billion or so next April if management bought back debt with excess cash now but none starting next year before they would have to resort to asset sales or equity dilution in order to avoid a default. Another alternative would be for management to cut back its drilling and allow production to fall. Given the capex numbers provided, this would allot Linn an extra $470 million cushion.

If, however, energy prices rise between now and then or if the credit facility drops by less than the $790 million in excess capacity the company has right now throughout next year, the results could be impressive. If management continues to use all of next years cash flow to buy back debt at $0.35 on the dollar, this would further reduce debt by $1.70 billion and interest expense by at least $134.86 million (this assumes a one-time buy at the end of the year, while periodic repurchases would result in total debt and interest expense falling by more). At current energy prices, we would see 2017 cash flow come in at $181.15 million under this scenario.

Takeaway

Based on the data provided, this move by management is a nice one but its disappointing that they could not strike up better terms and could not swap more than $2 billion worth of debt. Ultimately, this may prove an issue if the poor energy environment persists for an extended period but the strategy appears, to me, to be sensible and it will certainly prove accretive to the companys bottom line. Moving forward, there are a lot of things to keep an eye out for (particularly Linns credit facilities), but if management couples this debt swap with additional debt buybacks, investors have a right to feel more comfortable about the businesss long-term prospects.

Indian Hotels to restructure subsidiaries, looks to reduce debt

Tata group-controlled Indian Hotels Co. Ltd will undertake a restructuring of its subsidiaries and try to reduce the debt on its balance sheet as it bids to return to profitable growth.

Some of this, particularly the attempts to improve the finances of Indian Hotels, the operator of Taj Hotels Resorts and Palaces, has already been put in place, according to managing director Rakesh Sarna.

Our position is much better now than it was a year ago. In another year, we will be in the middle of massive restructuring of our subsidiaries, as well as recalibrating of our financial instruments. I believe in nine to 21 months, we will be on track, Sarna told Tata Review, the groups in-house publication.

In March 2014, Indian Hotels raised Rs.1,000 crore through a rights issue to bring down debt.

We are, indeed, restructuring and reducing our debt. I believe in progress and we have taken several initiatives that will place us in a better position from where we are now, Sarna said.

Referring to media reports suggesting that Indian Hotels will take at least two years to return to profitability, Sarna, who joined the 112-year-old hotel operator as chief executive in September 2014, said that profitability will depend on a number of factors, ranging from growth and revenue to reviewing cost structures and improving margins.

The firm has incurred losses for the last three fiscal years. As on 31 March 2015, Indian Hotels debt was Rs.5,074.48 crore.

Changes already being rolled out include the restructuring of the international operations and some of its wholly owned subsidiaries.

The initial step in this direction was organization restructuring. The Taj Group has 15 hotels outside India and 116 in India. Under the regional restructuring, each region head is in charge of 20-30 hotels, which includes hotels across the categories luxury, leisure and business, and across brands, Sarna told Tata Review.

In addition, Indian Hotels merged another wholly owned subsidiary, Lands End Properties Pvt. Ltd, with itself last month. Lands End Properties was primarily engaged in the business of owning and developing hotels, shopping malls, etc.

The amalgamation was aimed at giving Lands End Properties access to the financial resources and management experience of Indian Hotels.

Sarnas comments reflect major changes taking place at Indian Hotels, including in personnel and finances, said a senior hospitality consultant, who requested anonymity.

Sarna is initiating major changes. He is questioning conventional wisdom and bringing in new changes. Though there are some protests, Sarna is going ahead with major changes in organizational structure, the consultant said.

Sarnas appointment to Indian Hotels marked the first big management change in a Tata group company after Cyrus Mistry took over from Ratan Tata as group chairman in December 2012.

You need to build organizational capability for the present and future, and this can be done only by grooming potential leaders, people who can take over, who can not just carry on the legacy but do a better job with it, Sarna told Tata Review.

Prior to joining Indian Hotels, Sarna was the group president of Americas and executive vice-president at Hyatt Hotels Corp., where he had worked for three decades.

At Indian Hotels, Sarna has a number of challenges to tackle.

Among them is its acquisition of Hotel Sea Rock in the western suburbs of Mumbai, which has been challenged in the Bombay high court on environmental grounds.

Indian Hotels is also trailing rivals in terms of building new hotels. Local and international hotel operators have invested in new properties to establish a formidable presence in the market. Indian Hotels is building only 19 out of the total 357 new hotels that are coming up over the next two years.

In 2013, the company had to take a one-time charge of Rs.424 crore on account of its investment in the US hotel company Belmond Ltd, formerly known as Orient-Express Hotels Ltd.

Sarna, however, indicated that some of these challenges will be behind the firm in the next five years.

By 2020, Indian Hotels should have a stable pipeline in terms of assets and talent. It is not going to be a smooth ride. We have to take some tough decisions to streamline our portfolio. On other hand, we need funds for some of our hotels that need renovation, Sarna said.

Sarna added that the company will also focus on building a second line of leadership.

In an ideal scenario, I should be able to suggest to the board two-three names that, I believe, are ready to step into my shoes if I were not there tomorrow, Sarna said.

Amazon, Apple and Google Unite Behind Financial Innovation Coalition

Three of the technology industrys fiercest rivals Amazon, Apple and Google have aligned behind their shared business interest in promoting tech-friendly changes to the financial services sector.

The newly formed Washington, DC, advocacy group Financial Innovation Now will look to influence the political debate on issues such as security and fraud prevention, real-time payments, online lending and access to basic financial services.

A technological transformation is going to make financial services more accessible, more affordable and more secure, said Brian Peters, executive director of Financial Innovation Now. The challenge in Washington is making sure policy-makers understand that, and they’re comfortable with it, and they dont apply old rules to new technology.

The contours of a changing world are already visible: More than 2,500 banks and credit unions support Apples mobile payments system, ApplePay, which is on track to be accepted at some 1.5 million retail locations by the end of the year. Online crowdfunding site Kickstarter helped raise more than $2 billion in pledges for some 95,000 projects, while the peer-to-peer lending marketplace LendingClub originated some $2.2 billion in loans in the last quarter alone.

Goldman Sachs estimates $4.7 trillion in revenue could be up for grabs as technology upends borrowing, lending, making payments and investing. Investors are betting heavily on the transformation, with financial technology companies attracting $12 billion in investment in 2014 (up from $4 billion the year before), according to research firm CB Insights.

Technology giants want to have a voice in future policy discussions as the landscape changes. The group, which also includes Intuit and PayPal, will work to promote better security and authentication for users of financial services, access to basic financial services for the two billion people in the world who are underserved, speedier processing of payments and streamlined rules for online lending.

Edward Phillips, Partner, EisnerAmper LLP, to Speak at KC’s Event

New York, NY, November 10, 2015 –(PR.com)– The Knowledge Group/The Knowledge Congress Live Webcast Series, the leading producer of regulatory focused webcasts, has announced today that Edward Phillips, Partner, EisnerAmper LLP, will speak at the Knowledge Congress webcast entitled Instability and Bankruptcy of a Counterparty Company: Exposing the Risks in 2016 LIVE Webcast. This event is scheduled for December 8, 2015 @ 10:00 am 12:00 pm (ET).

For further details, please visit: https://theknowledgegroup.org/event-homepage/?event_id=1241

About Edward Phillips
Edward Phillips is a Partner in the firms Bankruptcy and Restructuring Group. He has nearly 30 years of finding solutions to problems in bankruptcy, restructuring, liquidation, accounting and forensic accounting matters. Ed has represented a variety of parties and functioned in a number of roles in bankruptcy proceedings, out-of-court restructurings, forensic accounting engagements and post-confirmation engagements.

Ed has worked with numerous debtors, creditors committees and secured lenders. He has been retained as a Chief Restructuring Officer. Additionally, he has acted as a disbursing agent, plan administrator and liquidating trustee for post-confirmation committees. He has been an elected Chapter 7 Trustee. He has been appointed as a receiver in the Delaware Chancery Court, a Permanent Receiver in the United States District Court for the Middle District of Pennsylvania, and a Liquidating Trustee in the United States District Court for the Eastern District of Pennsylvania. He has provided acquisition due diligence services to buyers of distressed assets. He routinely consults with and advises clients involved in avoidance actions such as preferences and fraudulent transfers. He has served as an expert in evaluating avoidance actions and other financial matters in dispute.

About EisnerAmper LLP
EisnerAmper LLP is a leading full-service accounting, tax and advisory firm, and among the largest in the United States. We provide audit, accounting, and tax services, as well as corporate finance, internal audit and risk management, bankruptcy and restructuring, litigation consulting, forensic accounting, and other professional advisory services to a broad range of clients across many industries. We work with closely held businesses, public companies, high net worth individuals, and Fortune 500 companies. With offices in New York, New Jersey, Pennsylvania, California and the Cayman Islands, and as an independent member of PKF International, EisnerAmper serves clients worldwide.

Event Synopsis:
Global economic turmoil and an environment of increasing interest rates in the US could increase the likelihood of bankruptcy filings. Insolvency can have profound effects for both debtors and counter-parties doing business with the company. Recovering funds from a debtor under bankruptcy protection is difficult for creditors who have been unable to collect monies owed. However, prior to a bankruptcy, when a company is in distress, creditors can adopt certain strategies to minimize the negative impact of a bankruptcy filing. Generally, upon the filing of a bankruptcy petition by a debtor, an automatic stay arises on property of the estate. In certain instances – forward contracts, master netting agreements, and swap agreements – the Bankruptcy Code allows parties to terminate and liquidate rights and to foreclose on collateral, but prompt evaluation of qualification is critical. While it can be difficult for creditors to recover funds in bankruptcy, there are still ways they can minimize the impact and maximize recoveries. An understanding of the Bankruptcy Code is critical.

It is in the best interest of counter-parties to understand the risks faced by companies with declining credit worthiness prior to their filing for bankruptcy. In these challenging times, all companies should assess and try to mitigate counter-party risks. It is prudent for every business to know the financial status of its counter-parties, customers, suppliers, and vendors. It is also essential to analyze and amend business terms, consider termination or review renewal of expiring contracts, analyze aging accounts receivable, reduce preference exposure, determine and improve available rights and remedies, and understand and protect their rights under bankruptcy.

In this two-hour, Live Webcast, a panel of distinguished professionals and thought leaders assembled by The Knowledge Group will help creditors understand the important aspects of this significant topic. Speakers will review and discuss Instability and Bankruptcy of a Counter-party Company: Exposing the Risks in 2016. The panel of speakers also will offer best practices in developing and implementing an effective program to mitigate credit risks, reduce counter-party bankruptcy exposure, and to recover funds.

Key topics include:
middot; Key provisions of the Bankruptcy Code
middot; Creditors Rights
middot; Types of Claims
middot; Recovery Options
middot; Involuntary Bankruptcy Petitions Pros, Cons and Risks
middot; Safe Harbor Provisions
middot; The Automatic Stay
middot; Executory Contracts
middot; Preferential and Fraudulent Transfers
middot; Development and Implementation of Effective CMS
middot; Compliance and Litigation Risks
middot; Best Practices

About The Knowledge Group, LLC/The Knowledge Congress Live Webcast Series
The Knowledge Congress was established with the mission to produce unbiased, objective, and educational live webinars that examine industry trends and regulatory changes from a variety of different perspectives. The goal is to deliver a unique multilevel analysis of an important issue affecting business in a highly focused format. To contact or register to an event, please visit: www.knowledgecongress.org.

India Inc caught in a debt trap

After a good run in 2014, the Indian stock market lost steam and turned volatile in 2015. Expectations of big-bang reforms that led the 2014 rally soon gave way to a downturn.

While the market capitalisation of NSE-listed companies has slipped 2 per cent in the last one year, investors in a few companies were hit far harder. JP Associates, for instance, has lost an eye-watering 63 per cent in market capitalisation, while GVK Power amp; Infrastructure lost about 40 per cent. The market capitalisation of Adani Power, Lanco Infratech and JP Power Ventures has eroded by over a third in the last one year. All these companies are highly indebted. India Inc’s debt woes are back in focus again.

Recently, the Centre announced a bailout package for struggling State-owned electricity distribution companies (discoms), which will involve the respective States taking over 75 per cent of the discoms’ debt. This is expected to reduce the stress on the balance sheets of banks that have loaned large amounts to ailing utilities.

In the infrastructure space, indebted companies are seeking lenders’ nod to refinance their loans under the RBI’s new 5:25 scheme. Under this scheme, banks can stretch the debt repayment schedule to 25 years, thus easing the cash flow pressure on companies.

The fact that debt-ridden companies are queuing up to make use of this scheme is indicative of their financial stress.

Leading banks, including private ones, have reported higher defaults in the latest September quarter. While recent reports point to the grim debt situation within corporate India, these are only anecdotal evidences. To dig deeper and find out how things have changed, particularly in the last two years — when companies started to cut back on their capex and aggressively prune their debt — we sifted through the data for 966 NSE-listed companies (having comparable data for five years, excluding banks and financials).

Here are six interesting trends that our analysis threw up.

Debt accumulation slows down

Let us begin with some encouraging statistics. After a sharp rise in debt levels, particularly between 2007-08 and 2011-12, sanity appears to have returned, with the pace of growth in debt moderating substantially in 2014-15.

Between 2008 and 2012, when Indian companies had lined up aggressive capex plans, total debt grew 23 per cent annually. Even after moderating from such high levels, debt grew 16 per cent annually till 2013-14. But as of March 2015, the growth in total debt of NSE-listed companies has fallen to 5.8 per cent.

Efforts by India Inc to reduce debt and cut back on its investments appear to be paying off to some extent. After outpacing the growth in assets in most years since 2008, the increase in debt has also been commensurate with the growth in assets last fiscal. Assets for the NSE-listed companies grew 5.6 per cent in 2014-15.

This is in stark contrast to the trend seen in earlier years, when companies took on significant loans with the intention of ramping up capacities, but were unable to do so. Until 2013-14, the long-term debt of 966 NSE-listed companies had soared, growing about 30 per cent annually. But fixed assets of these companies — for which debt was raised in the first place — grew just 15 per cent.

Weak demand plays spoilsport

The good news for Indian companies ends with the slower pace of growth in debt. The picture gets gloomy thereafter. It is true that with debt levels growing modestly, the rise in interest costs has moderated too. Over the last five years, interest costs shot up 24 per cent annually for 966 NSE-listed companies. In 2014-15, it grew just 9 per cent. But savings on interest costs have failed to translate into better earnings, owing to weak demand. Sales for India Inc were flat in 2014-15, and this overshadowed the benefits of lower raw material and interest costs.

India Inc is in a typical chicken-and-egg situation. While cutting back on investments has helped companies reduce debt, the fallout of this has been weak economic activity. In 2014-15, earnings of all NSE-listed companies put together slipped 8 per cent compared to the previous year. The interest cover — the ability of a company to service its interest payments — has thus fallen from 3.5 times two years ago (six times in 2009-10) to 2.75 times in 2014-15. If we look at the data for NSE companies that have declared their September quarter results so far, the financial performance still appears dodgy. While lower interest rates following the RBI’s aggressive money easing stance should help lower the interest burden for companies, it may not boost earnings in the near term. Moreover, lending rates have moved down only by about half a percentage point which, in itself, is not a game changer.

The good get better, the bad turn worse

Over the last two years, companies with low leverage (debt equity lt;1) have managed to hold on well. The interest cover for such companies has held steady at 6.8 times over the last two years.

About half the 966 NSE listed companies had a debt equity ratio of less than one in 2012-13. A similar number of companies had a low leverage in 2014-15. The flat earnings for such companies in the FY15 fiscal was a tad better than the 8 per cent fall in earnings for all NSE listed companies put together.

But companies that are saddled with huge debt have not had it easy. The prolonged slowdown, particularly in the last two years, has impacted their cash flows and interest paying ability.

The interest cover for companies with debt equity ratio of over one slipped from 1.9 times two years ago to about 1.5 times in 2014-15. For companies with debt equity of over three times, the situation is far worse. From an already low cover of 0.9 times (just about meeting interest payments) in 2012-13, interest cover fell to a precarious 0.5 times in 2014-15.

The problem has also gotten larger in size with more number of companies’ debt-equity ratio rising to over three and five times in the last two years.

In 2012-13, the number of companies that had debt-equity ratio of more than three was 69 (of the 966 NSE-listed companies).

This number rose to 85 in fiscal FY15. Similarly, the number of companies with debt equity of over five is 50 per cent more than that seen two years ago.

If the recent concerns over InterGlobe Aviation’s negative networth (owing to large payout of interim dividend to promoters) caught your attention, then there are many other listed companies whose net worth has slipped into negative territory. And this is not because the promoters decided to help themselves to a large dividend.

Of the 966 NSE listed companies, 68 have negative net worth as of 2014-15. Prominent among these are Suzlon Energy, Jet Airways and Lanco Infratech, all of which are high-debt companies. Five years ago, there was not a single company with negative net worth within the NSE-listed space!

Sector-specific issues

While the rise in interest costs for all NSE-listed companies has moderated, a few sectors are plagued by a steep increase in interest payments.

It is common knowledge that the debt woes for infrastructure, power, iron and steel, mining and textiles run deeper than in other sectors.

Some of the policy reforms in these troubled sectors, while under way, have a long way to go before they start yielding results.

The power sector has been facing multiple challenges in terms of fuel availability and project clearances. While the recent revival package will bring respite to the financially stressed discoms, timely tariff hikes and reduction in transmission and distribution losses will be essential to see a structural improvement.

For now, debt woes continue to plague the sector. The overall debt-equity ratio for the sector has gone up to 1.7 times in 2014-15 from 1.4 times two years ago. Interest cover has shrunk from 2.8 times to 1.8 times now. Interest costs continue to rise, growing 23 per cent in 2014-15.

Steel is another sector that has been beset with issues stemming from difficulties in land acquisition, delayed environmental clearances, and meltdown in global commodity prices. Interest cost for the sector continued to rise in 2014-15, growing 24 per cent.

Owing to flat sales and higher costs, the sector moved into the red in 2014-15, with leading players, such as Tata Steel and Bhushan Steel, reporting losses for the year.

In the construction and infra space, while the growth in debt has moderated substantially from 25 per cent annually in the last five years to 8 per cent in 2014-15, earnings shrank over 70 per cent on weak demand. As these companies battle to pay off their existing debt obligations, a quick turnaround in most of them is unlikely.

Some industrials do better

While the overall picture for India Inc may still look gloomy, there are a few bright spots. Sectors such as Pharma, IT and FMCG have always maintained very low leverage — most companies are cash rich and generate robust returns. But there are other industrial sectors as well that have managed to tide over the slowdown.

Consider auto, for instance. While the slowdown in the economy impacted sales, most companies have managed to maintain a healthy interest cover. For auto players, FY15 was a mixed bag.

While tepid volume growth in the motorcycle segment and a decline in tractor sales impacted the performance of companies such as Bajaj Auto, Hero MotoCorp, and Mamp;M, a strong recovery in PV sales and market share gains drove the strong performance by Maruti Suzuki. Ashok Leyland too, benefited from a recovery in medium and heavy commercial vehicle sales. Lower raw material prices have also helped most players on the margin front.

While auto components supplier Amtek Auto has been in trouble owing to the inability to service its debt, the sector as a whole appears to be on a sound footing.

Barring a handful (nine of the 48), that have an interest cover of less than one, the overall debt-equity (at 0.4 times) and interest cover (5.6 times) for the sector remain healthy. Sales and earnings growth for the sector have been in the range of 12-13 per cent in 2014-15.

It’s a sale alright!

As evident from the data presented above, for many Indian companies, debt troubles are far from over, exacerbated further by weak demand and falling commodity prices.

In the past year, asset sales have emerged as a quick-fix solution to corporate India’s debt woes. In theory, such sales can help companies liquidate their assets and repay some of their debt.

But surprisingly, despite asset sales, many large corporates still carry enormous debt on their balance sheets that has only grown (rather than shrink) after the assets sales!

Preposterous as it sounds, that has been the case with many companies in the infra and power sector, which continue to witness delays in the completion of existing projects.

And hence they are forced to take on more debt, not for capex but just to fund operational losses on these projects.

Take Jaiprakash Power Ventures, for instance. The company sold two hydro plants of 1,391 MW capacity for about #8377;9,700 crore in 2014-15. While part of the amount raised through sale of assets has been used to repay debt, the total debt for the company has still gone up by 11 per cent in 2014-15.

What is of even greater concern is that the company appears to have sold off its more promising assets.

According to the latest annual report, the two plants sold contributed 59 per cent of the company’s total operating profit before interest and tax. In fact, the remaining operations (post-sale) are loss-making at the PAT level and carry the chunk — 60 per cent — of the interest cost.

Lanco Infratech is another company that sold a portion of its assets recently in a bid to reduce its debt. The company sold its Udupi power plant to Adani Power at an enterprise value of #8377;6,300 crore. While the sale helped the company reduce its debt to some extent, it has also meant lower earnings for the company. This is because the Udupi project contributed over 60 per cent to the company’s overall EBITDA in 2014-15, according to the annual report.

There are many such companies, particularly in the infra and power sector, that have sold their core earnings assets to reduce debt.

Supreme Court allows DLF units to sell shares, rejects Sebi plea for restraint …

NEW DELHI: The Supreme Court today allowed three DLF subsidiaries to sell shares worth Rs 12,000 crore to reduce debt, declining the regulators plea to prevent the real estate groups move. The DLF stock was up 3.9 per cent at 11:24 am on the Bombay Stock Exchange.

The Securities and Exchange Board of India (Sebi) had previously passed an order restraining DLF and its key directors including promoter KP Singh from directly or indirectly accessing the market or dealing with any securities over what it said was the violation of disclosure norms during the companys initial public offer in 2007.