Explained: Why Simplex Infra Has Been Classified As A Non-Performing Asset

The Kathipara bridge in Chennai, one of the esteemed projects of Simplex Infra.

Simplex Infrastructure, which once boasted of a slew of Infra projects both in India and abroad has run its course. 

The Company is working on stressed resolution plans with banks to avoid being referred to the National Company Law Tribunal (NCLT) as it has started defaulting on the bank loans. 

As of January 2020, the company had outstanding borrowing of Rs 3600 crore. There are talks of possible stake sale to Adani Group as per some reports. 

The adverse macroeconomic scenario coupled with weak execution and mounting debt has pushed the lenders, Union Bank of India (UBI), the lead bank of a consortium of 28 lenders, to classify the account as ‘non-performing asset’ (NPA) in the third quarter of FY20. 

Bank of India, too, marked Simplex Infra’s working capital loan as NPA. Three banks, UBI, SBI and Allahabad Bank have significant exposure into this account.

The trouble had started last year when brokerage houses had flagged rising gross debt position and weak project execution as key concerns.

As per ICICI Direct report in June 2019; 

“With Simplex currently focusing on improving internal operations and recovery of old debtors, its execution could remain muted in FY20. 

While the stock’s around 68 per cent fall in the past six months is reflective of concern on old debtors, we have not seen meaningful debtors recovery. Even debt levels have not been as per the company’s expectations and continue to remain elevated,” the brokerage reasoned for keeping reduce rating on the stock with a target price at Rs 130, implying 11 per cent potential downside.

Simplex’ gross debt on books increased by Rs 115 crore QoQ to Rs 3,651 crore in Q4 FY19, higher than its target of Rs 3,200-3,400 crore in FY19. 

This year in February Simplex lost key metro project under Mumbai Metropolitan Region Development Authority (MMRDA) awarded to them. MMRDA had appointed Simplex Infrastructure in January 2018 to design and construct a 12-km viaduct and 11 stations, but it could complete only 5 per cent of the work against the expected 65 per cent in 30 months. 

In the annual report for FY19, company chairman Rajiv Mundhra referred to the unpredictability in timelines and executions in infrastructure projects “due to disruptions caused by the implementation of GST as well as bottlenecks in some projects due to delayed customer payments clearances and land acquisition.” 

As per recent reports, the Adani group is eying a stake in the debt-ridden company along with private equity players joining the race. 

Adani Group, the front-runner among the potential investors, has begun discussions with Simplex Infrastructures’ promoters. The move is part of a stressed asset resolution plan that the Simplex Infra management is working on. The plan includes restructuring of existing loans and capital-raising through fresh shares.

If the talks fructify, the promoter holding would dilute from the present 49.8 per cent, a Simplex official said, adding that the company is exploring an option where the shareholding of the promoter, the new investor and the public would be equal at 33.33 per cent each.