Ajit Gulabchand, Chairman and Managing Director of HCC, at the World Economic Forum summit (Photographer: Prashanth Vishwanathan/Bloomberg)

HCC Sells Claims Worth Rs 2,000 Crore To Investors Led By BlackRock

Hindustan Construction Company Ltd. on Tuesday said it has sold a portion of its claims to investors led by BlackRock Inc.

The construction company sold Rs 2,000-crore worth specified awards and claims to the U.S.-based investor for a consideration of Rs 1,750 crore, according to its stock exchange filing,

About Rs 1,250 crore from the sale proceeds will be used to repay debt, while the remaining Rs 500 crore will be used for working capital needs and business expansion, HCC said. A special purpose vehicle will be set up to manage these claims controlled by the investors.

As per the structure of the transaction, the SPV will issue non-convertible debentures, which will be subscribed by the investors. The money received from the investors will be deposited in an escrow account and will be utilised for the purchase of the awards and claims from HCC by the SPV.

The specified awards and claims will not be considered an asset of HCC and shall be free from all encumbrances, the company said. The transaction, however, does envision a claw back of value by HCC if the recovery of the specifled awards and claims assigned to the SPV were to cross certain thresholds, the stock exchange notification read.

HCC will continue to take recovery and litigate these specified claims on behalf of the investors.

The transaction will result in a partial write-down of HCC’s net worth. The construction company, however, did not specify any number. The value of the awards and claims is nearly 50 percent of HCC’s net worth, according to its stock exchange filing.

HCC’s board also constituted a committee of directors to resolve any issues, that may crop up during the final consummation of the transaction.

The sale process has been prompted by a resolution plan prepared by lenders under the inter-creditor agreement. The lenders have been trying to restructure over Rs 4,000 crore, where they have proposed that a portion of the loans will be converted in to long-term equity. An earlier attempt to resolve the account under the scheme for sustainable structuring of stressed assets had remained unsuccessful.

The transaction is a form of litigation financing, where companies can raise money from investors against the claims they have pending from various parties. On March 12, BloombergQuint had reported that HCC was in the process of finding buyers for its claims. The company has outstanding unpaid claims worth nearly Rs 10,000 crore. Typically, claims against the central government or government-owned bodies attract more investors, since there is a higher chance of recovery.