Laborers prepare reinforcing steel at a construction site. (Photographer: Prashanth Vishwanathan/Bloomberg)

Hindustan Construction Headed for Two-Year Low on Lavasa Default

(Bloomberg) -- Hindustan Construction Ltd. is headed for its lowest close since June 2016 after its unit Lavasa Corp Ltd. defaulted on repayment to bondholders.

The stock declined 16 percent as of 11:51 a.m. in Mumbai, paring an earlier drop of as much as 24 percent, making it the biggest loser on the S&P BSE 500 Index. The shares have slumped 53 percent this year compared with a 2.9 percent gain for the benchmark Sensex Index.

Lavasa, which is constructing a hill-station township project near the city of Pune, has defaulted on dues payable to bondholders and also has delayed repayment to other creditors including banks, the company said in an exchange filing today. The firm and its units are working with lenders on a resolution plan and are reassessing the business plan, the filing showed. Under current Reserve Bank of India rules, if a stressed loan is not resolved within 180 days, the case will be moved to bankruptcy court.

“Investors are concerned that if Lavasa goes bankrupt then founder HCC will be hurt the most,” said Sanjiv Bhasin, executive vice president at India Infoline Ltd. “HCC may have to sell off assets to pay off Lavasa creditors.”

Lavasa’s attempts to restructure the debt by working jointly with lenders was slowed down after the RBI changed its policy, the company said in a March 22 filing. The RBI introduced a time line for the country’s banks to recast bad loans and scrapped previous methods for restructuring debt in a Feb. 12 notification.

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