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Construction companies’ woes threaten economy

Sutanu Sinha, Partner
Business Restructuring Services

24 September 2018

The bankruptcy of large construction companies is likely to take a heavy toll on the economy as many projects being constructed by them remained stalled midway.

There is little chance of these large multi-location engineering, procurement and construction (EPC) players being revived with little interest being shown by large and serious entities in this industry in taking them over, experts said.

“We would see the largest number of liquidation in the EPC sector under the insolvency and bankruptcy resolution process,” Kumar Saurabh Singh, partner, Khaitan & Co, a reputed legal firm that has been advising top corporate clients, told DNA Money. Liquidation has been ordered for Lanco Infratech while Hyderabad-based diversified construction player IVRCL hasn’t been able to get any serious resolution proposal.

Era Infra Engineering, another leading EPC player, has been referred for insolvency resolution process back in May while lenders to Gammon India dragged it to National Company Law Tribunal (NCLT) earlier this month.

“Infrastructure construction companies referred to NCLT for resolution have manifold challenges compared to other industries. In most of the cases, decision on the fate of the companies will have a direct impact on the infrastructure development of the country. One has to look into this aspect,” Sutanu Sinha of BDO Restructuring Advisory and former director of Canara Bank, said. 

Getting buyers for troubled EPC companies would be a challenge, he said.

“Once an EPC company turns insolvent, its qualifications for future projects become very doubtful. Ability to qualify for projects is the most critical asset of an EPC player. How these entities, large but non-qualified, would be able to survive, then as projects can be given to other small players who can assemble sub-contractors and get the work executed. This is a big concern among large bidders who are now staying away,” Singh said.

Lenders to Era Infa have reportedly invited Expression of Interest from contractors to replace the EPC player in a 80-kilometre road project from Muzaffarnagar to Haridwar.

Again, a typical contract for EPC would have clauses which would allow clients to terminate a project contract due to insolvency proceedings against a contractor.

While resolution is a necessary part of finding a solution to NPAs of the banking sector, so far experiences have been varied, Divya Charen, senior analyst with India Ratings, said.

“Resolution processes, in many cases, are turning out to be long drawn and assets under construction stuck in the process would get affected. Banks are getting reluctant (to provide working capitals) because of their past experiences with infrastructure assets. As a result, income generation from these assets are also getting impacted,” she said.

Delay in initiation of resolution process could be another reason why many of these companies might end up getting liquidated.

“While a company like IVRCL has been stressed for past several years, resolution process started only this year. This significantly reduces chances of revival,” she said. Most of the construction companies have turned non-performing assets because of cash-flow issues which impacted their loan servicing abilities. 

“More time could have been given to construction companies to get revived. The 180-day deadline for resolution is too restrictive for such companies,” Ankur Agarwal, a senior analyst with India Ratings, said.

“Since construction companies don’t have asset base like steel or power sector, this deters investors. So, while bidding for such stressed companies, factors like pre-qualification as truly intangible assets, pending order booking or capacity of the company to bear its finance cost vis a vis projected scale of operation are important parameters which need to be assessed carefully. The performance of these companies is assessed over a larger timeline of say 10-20 years.”


  • Liquidation has been ordered for Lanco Infratech while Hyderabad-based IVRCL hasn’t been able to get any serious resolution proposal  

  • Era Infra Engineering has been referred for insolvency resolution process in May while Gammon India lenders have dragged it to NCLT   

  • Once an EPC company turns insolvent, its qualifications for future projects become very doubtful.


Lanco Infratech Rs 47,000 cr

IVRCL Rs 13,700 cr

Era Infra Rs 10,000 cr

Gammon India Rs 7,000 cr