Why JP Associates Share Price is Falling

Imagine a tightrope walker, high above a roaring crowd. Suddenly, they lose their footing. One wobble leads to another. With each panicked attempt to regain balance, the fall seems inevitable.

This is the precarious situation JP Associates finds itself in right now. The company's share price has been under immense pressure. It's like a tightrope walker caught in a relentless downdraft.

A constant barrage of bad news, all seemingly interconnected, has triggered a domino effect of negativity. This negativity has pulled the stock price down a concerning 14% in just the past five days.

Debt woes are at the center of the storm. Let's explore the specific factors acting as those perilous gusts of wind.

#1 Insolvency Proceedings

Last month, the National Company Law Tribunal (NCLT) admitted the insolvency plea filed by ICICI Bank and State Bank of India (SBI) against Jaiprakash Associates (JAL).

The tribunal appointed an interim resolution professional (IRP) and directed the initiation of a corporate insolvency resolution process (CIRP).

The Allahabad bench also dismissed the merger of Jaiprakash Associates with Jaypee Infrastructure Development.

ICICI Bank initiated the insolvency proceedings in 2018, and SBI joined in 2022 to expedite the resolution.

Jaiprakash Associates has a principal debt of Rs 177 billion (bn), with total outstanding debt, including interest, amounting to Rs 293.6 bn.

A consortium of 22 lenders, led by ICICI Bank, SBI, and IDBI Bank, has exposure to JAL.

JAL, part of the debt-ridden Jaypee group, was listed by the Reserve Bank of India in August 2017 as one of 26 major loan defaulters for bankruptcy proceedings.

These insolvency issues have led to a sharp decline in investor confidence, causing JAL's share price to fall.

#2 Rejection of OTS

On 29 May 2024, Jaiprakash Associates offered an original one-time settlement (OTS) to its lenders.

This included an upfront payment of Rs 2 bn and a proposal to pay the remaining Rs 160 bn within 18 weeks from the acceptance of the OTS.

On 25 June 2024, JAL revised its OTS as ordered by National Company Law Appellate Tribunal (NCLAT). The revised offer included a Rs 5 bn upfront deposit and the sale of its assets to Dalmia Cement.

Additionally, the company expedited the redemption schedule for optionally convertible debentures, covering Rs 60 bn, and offered to pay an extra Rs 1.5 bn within 12 weeks.

It also assured lenders that the entire proceeds from the sale of its cement business would go to lenders.

However, today, the lenders rejected the revised OTS. ICICI Bank, representing the lenders, informed NCLAT.

Following this news, JAL's share price fell by 5% today, deepening investor concerns.

What Next?

As of 30 April 2024, the total overdue amount by JP Associates was Rs 46.2 bn, consisting of Rs 17.5 bn in principal and Rs 28.7 bn in interest payments.

The company's total borrowing, including interest, is Rs 298.1 bn, repayable by 2037.

The company's financial commitments include various banking facilities such as fund-based and non-fund-based working capital, term loans, and foreign currency convertible bonds (FCCBs). These are undergoing restructuring.

It plans to transfer Rs 189.6 bn of its debt to a Special Purpose Vehicle (SPV).

This transfer is part of a scheme of arrangement awaiting approval from the National Company Law Tribunal (NCLT) and has been endorsed by all relevant stakeholders.

The company stated that after the proposed divestment of the cement business and restructuring, its borrowing will be reduced to nearly nil.

It is actively divesting its cement operations to alleviate its debt load.

However, creditors will need to intensify efforts to recover dues from the company's hotel, cement, and real estate businesses in Delhi, Agra, Noida, and Mussoorie.

The personal guarantees given by the promoters are insufficient to cover the liabilities.

Total guarantees of about Rs 7.8 bn provided by the company's chairman and promoter Manoj Gaur cover less than 2% of the group's Rs 520 bn dues.

Guarantees by Gaur and vice-chairman Sunil Kumar Sharma totaling close to Rs 8 bn are of little consequence now after nearly seven years since the company was first referred to bankruptcy by the Reserve Bank of India (RBI) in 2017.

Among the assets in which lenders have a first charge are JAL-owned hotels in Agra, Noida, Delhi, and Mussoorie; five cement units in Churk, Rewa, Sadwa Khurd, and Chunar; and the company's land holding in Yamuna Expressway Industrial Development Area near Noida.

The guarantees by the promoters serve as a form of insurance because invoking a personal insolvency has both civil and societal implications.

The ongoing restructuring efforts and asset divestments by the company, coupled with inadequate personal guarantees, suggest significant challenges for creditors in recovering dues.

This uncertainty is likely to continue weighing heavily on its share price.

How JP Associates Share Price has Performed Recently

In the past five days, JP Associates share price has tumbled 14.6%. In the last month, it is down 35.8%.

In 2024, so far it is down 60% and it is up 5.8% in the past one year.

The stock touched its 52-week high of Rs 27.2 on 12 February 2024 and a 52-week low of Rs 7.5 on 28 July 2023.

About JP Associates

Jaiprakash Associates is a diversified infrastructural industrial conglomerate in India.

The company is the leader in engineering and construction of hydropower projects in India.

The company is the only integrated solution provider for hydropower projects in the country with a track record of strong project implementation in different capacities.

For more details, see the Jaiprakash Asso company fact sheet and quarterly results.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy Investing!

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