Buyback by govt, IAF dues behind HAL financial woes
NEWDELHI: Hindustan Aeronautics Ltd (HAL) has paid ~9,406 crore in three years — 2015-16, 2016-17, and 2017-18 — to the government of India as dividend to buyback its shares and as tax on buyback and dividend, according to the financial statements of the company and documents accessed by Hindustan Times, perhaps explaining the poor financial health of the stateowned company.
Over a five year period, including 2013-14 and 2014-15, the number increases to ~11,024 crore.
In addition, the so-called receivables (or amount owed for completed work) on its books are a staggering ~15,000 crore, with much of this being owed to the company by the Indian Air Force (IAF). As a result, the company has frequently borrowed from banks and financial institutions to meet its operational expenditure.A senior government official said senior HAL executives and officials of the ministries of defence and finance will meet in New Delhi later this week.
They will help address the company’s financial woes. “Some way out, perhaps by way of early payments, will be worked out,” the official added.
According to HAL’s annual report, the company borrowed nine times in the last financial year to meet its working capital requirements; of this, it borrowed seven times in March 2018 alone. The company borrowed a total of ~4,446.87 crore in the last nine months of the previous financial year. “The company has not defaulted in repayment of loans or borrowings to a financial institution, banks, government or dues to debenture holders during the year,” the annual report for 2017-18 said.
It said that the company had timely serviced its short-term debts, but could not start repayment of the ~100 crore it had borrowed for the acquisition of capital asset.
HAL director (finance) and chief financial officer CB Ananthakrishnan and the company’s spokesperson did not respond to Hindustan Times’ queries. The company’s chairman and managing director R Madhavan couldn’t be reached. A Delhibased chartered accountant, who did not wish to be named, said that receivables are part of the assets against which the company can always raise money from banks and financial institutions.
HAL’s financial burden is also mounting because IAF hasn’t paid HAL in full for work done in the last two financial years, company executives said.
According to a senior HAL executive who did not wish to be named, IAF’s outstanding is expected to soar to ~20,000 crore by the end of this financial year (March 31, 2019).
Experts say that the buybacks hit the company the most. In 2015-16, HAL spent ~5,265 crore on a buyback; in 2017-18, it spent ~1,128 crore. A buyback is where a company buys back its shares from shareholders (and extinguishes them), paying for it from free reserves or cash flows. HAL’s annual report (the company was listed in March 2018 and only one annual report is available), says the 2017-18 buyback was funded from reserves. It isn’t clear how the earlier buyback was funded.
This is the first time in the history of HAL that the government used the buyback option to raise funds for itself (to meet its disinThe vestment target).
In addition, HAL paid dividends of ~755 crore, ~962 crore and ~1,294 crore (the amount includes dividend tax).
While the government has clarified that HAL will get more orders, this is a process that is time consuming. “Orders are placed after lengthy price negotiations; there is no clarity on time frame. We are going through a working capital shortage now,” a second HAL executive who did not want to named said. He added that it isn’t “prudent to account for orders until they have been placed”.
“We are being squeezed from both sides, our customers have not paid us whereas the government for the first time in the history of HAL used the buyback option. It is not salary alone, HAL doesn’t have money to pay its vendors, procure raw material, which is extremely serious,” Surya Devra Chandrasekhar, general secretary of HAL Employees Union, said.
The company could not leverage the initial public offering (IPO) made last year that led to the listing of the company with the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) on March 28, 2018. The entire amount raised, ~4,054.66 crore, was mopped up by the promoter, the Central government, to meet its disinvestment target by diluting its 10.03% equity stake in the company though the IPO.
At the time of the IPO, a Kotak Securities private client research summed up its good financial year in its March 2018 report: “HAL has a sustained track record of profitability and have paid dividends to stakeholders every year for over four decades. As of December 31, 2017, HAL’s order book was ~684.6 bn [~68,460 crore], which generally includes products and services to be manufactured and delivered and excludes anticipated revenues from its joint ventures and subsidiaries”.
HAL’s shares closed at ~790.90 apiece on Monday, a fall of 2.75% compared to the previous day’s closing.