Download - RESTRUCTURING PROPOSAL.PPT

FINANCIAL RESTRUCTURING PROPOSALS OF

KONKAN RAILWAY CORPORATION LTD.

1

FORMATION OF KRCL

• Formed in 1990-MOR with four states

Maharashtra, Goa, Karnataka and Kerala

• Construction of railway line 741km

connecting Roha-Mangalore

• First BOT (Build – Operate – Transfer) project

• Commissioned on 26th Jan1998.

2

COST OF THE PROJECT MEANS OF FINANCE

1989-Estimated cost – 867

1998-Completion Cost–3555

-Works cost –2520

-Financing cost –1035

Equity Capital – 800

-Railways- 51%

-States - 49%(Mah 22%)

(Kar 15%)

(Ker 6%)

(Goa 6%)

Bonds –2755

Rs in Cr.

3

REASONS FOR TIME & COST OVERRUN

• Difficult Terrain

• Agitations

• Change in alignment (Oza Committee)

• Inflation and time overrun

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• Dr. Manmohan Singh, the then FM, in parliament -July 1991“I do not think that this corporation can pay the rate of interest which the term lending institutions would charge. If you look at the economic survey … asking this Corporation to go to term lending institutions is to condemn this project right from the inception to non-viability.”

UNEVEN PLAYING FIELD

5

UNEVEN PLAYING FIELD contd..

• High cost of market borrowings

• No concession for new lines.

• No strategic line concession in spite of naval

project “seabird” at Karwar

6

CAPITAL STRUCTURE AS ON 31-03-2008Particulars Amount (Rs in Cr.)

Authorised Capital 806

Paid-up Capital 803

Accmulated losses 3262

Net worth(Paid up Capital – Accumulated losses)

(-) 2459

UNSECURED:

MOR loan -Rs.2731.40Cr.

(Int brg. Rs.1686 Cr Int free Rs. 1045 Cr)

Interest Accrued -Rs. 491.04Cr.

(Provision @ 7% - At par with dividend payable to General Rev)

3222.44

SECURED:

Bonds 2458.50

Total Debt (MOR AND BONDS) 5680.957

MANPOWER AS ON 31-03-2008

• Executives - 162

• Non Executives - 4142

----------

Total 4304 including only 132

---------- deputationists from

Indian

Railways.8

REASONS FOR SUB-OPTIMAL FINANCIAL PERFORMANCE

• High project cost

• High cost of market borrowings

• Non-materialisation of freight traffic

• High Debt-Equity Ratio

9

INNOVATIVE MANAGEMENT PRACTICES AND STRENGTHS

• Operating Surplus from first year onwards• Lean-thin, staff strength about 50% of Indian

Railways• Multi-skilling • Innovative and economical maintenance practices• Extensive use of IT• No Government Railway Police • No cashier and all salaries by cheques• All cash collections at stations by banks • Completely computerized Traffic Accounts, hence

staff negligible in Traffic Accounts.

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MULTI-SKILLING

• Medical - A Multi Purpose Health Worker- Ambulance

driver, Dresser, Pharmacist, Clerk, etc.

• Mechanical – Loco and Carriage Wagon – One

• Engineering - Works and Permanent Way -One

• Electrical– Train lighting, air – conditioning and

general maintenance - One

• S&T -Electrical, Signal & Telecommunication - One

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PHYSICAL PERFORMANCE

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Particulars

Unit

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

Originating loading

Million Ton

0.57 0.62 0.68 0.68 1.06 1.21

NTKM Million 525 672 1314 1597 2090 2854.21

GTKM Million 4909 5144 6489 7147 8204 9350.30

GMT Million Ton

6.64 7.00 8.78 9.67 11.10 12.66

FINANCIAL PERFORMANCE Rs. In Cr.

13

Particulars 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Coaching Earnings 175.49 186.37 184.08 191.36 205.66 231.95

Freight Earnings 36.52 48.99 87.68 149.36 206.58 269.07

Other Income 15.42 12.84 7.80 8.75 11.68 9.44

Total Earnings 227.43 248.20 279.56 349.47 423.92 510.46

Operating surplus (PBDIT)

81.64 54.63 62.89 108.14 139.72 209.37

Finance Charges - On Bonds

269.17 256.60 222.46 210.96 215.20 185.47

- On MoR Loans

34.77 75.21 80.64 90.42 104.45 118.19

Total Finance Charges

303.94 331.81 303.10 301.38 319.65 303.66

Depreciation 70.34 70.44 69.81 69.74 69.90 70.05

Total Expenditure 550.55 607.56 592.97 614.77 675.83 676.91

Net Profit/(Loss ) (Train Operations)

323.12 359.36 313.41 258.40 252.12 (168.86)

Project Surplus 0.13 1.63 8.96 22.79 18.84 23.07

Total net loss (322.99) (357.73) (304.45) (242.51) (233.07) 143.38

Net worth (negative) (1211) (1558) (1859) (2080) (2314) (2459)

Debt/ Equity ratio 5.54 5.92 6.38 6.54 6.76 7.07

Operating Ratio 95.00 106.40 102.50 89.00 83.40 72.71

1. Closure of Railway line with KRCL.

2. Merger of KRCL with Ministry of Railways.

3. Continuation of KRCL as a PSU.

OPTIONS FOR THE FUTURE OF KRCL

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OPTION I:- CLOSURE OF RAILWAY LINE WITH KRCL.

• About 25 Mail Express passenger trains including Rajdhani,

Jan Shatabdi etc. carrying about 30 million passengers

annually.

• Freight trains - food grains, fertilizers, cement, iron ore,

petroleum products etc.

• Shortest rail link from Mumbai to Kerala

through Maharashtra, Goa and Karnataka.

• CLOSURE NOT POSSIBLE - NOT AN OPTION.

OPTIONS FOR THE FUTURE OF KRCL contd..

15


OPTIONS II AND III:- MERGER WITH MOR V/S

CONTINUATION OF KRCL AS A PSU.

• Merger has no tangible financial & operational benefits.

• With or without merger the financial liabilities of MOR

A. i) Bonds worth Rs.2498.50 Cr. .

ii) Interest liability of about Rs.200 Cr. per

year.

B. MOR loan including interest of Rs.2668.40 Cr..16


With merger additional liabilities and negatives:

• In addition, MOR to pay to the four states Rs.395 Cr. equity at par.

• Absorption of about 4000 employees in MOR/Govt. may not be possible.

• Additional requirement 4000 staff as per IR yardsticks.

• KRCL practices appreciated by customers,

MOR, World Bank etc.

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• May not be prudent to destroy an efficiently running system.

• Multi-skilling with various modern and innovative work practices may get sacrificed.

• The only Railway PSU, also a Working Railway, a center for encouraging, conception and development of new ideas to reality, a cost – profit center.

• KRCL model is often cited for adoption for new setups like Dedicated Freight Corridor etc.

• Especially with the present day trends towards corporitisation – converting KRCL into a Government department will be a retrograde step. 18

KRCL ALREADY ON A TURNAROUND

• 2006-07 Freight Revenue higher than passenger revenue for the first time.

• Operating Ratio - expenditure / revenue – 72.71%.

• Zonal Railways with operating ratio above 100% continue to get support.

• No. of Zonal Railways with operating ratio above 100%Eastern – 145.5%, North Eastern – 145%,

North Frontier – 129%, Southern – 114 %. 19

IMPORTANT EFFICIENCY INDICES

Description Unit Indian Railway2006-07

Konkan Railway2007-08

Improvement %

Staff strength/track

km.

NOS. 12.86 4.61 64

NTKM/wagon day

NTKM 2872 4651 62

Wagon km/wagon

day

KM 212 386 82

Engine Km/per day

KM 376 568 51

20

TO SUM UP

• Merger neither feasible nor desirable. No

tangible financial & operational benefits

for MOR/Government

• MOR has decided on economic, man

power, and productivity considerations-

KRCL should continue as a CPSU.21

ADDITIONAL TRAFFIC & REVENUE STREAMS

• Tata Metallics Steel Plant at Sawantawadi operative 2006-07.

• Belekeri Port ex Ankola station operative 2007.• Roll –on Roll Off (RO-RO) – Ankola-Suratkal

started August, 2007.• Iron ore capacity for Kudremukh Iron from

Bellari-Hospet enhanced 50% from September 2007.

• Ispat steel at Roha capacity doubling by may 2008. 3.4 million tonnes to 7 million tonnes.

• Dighi port commissioning in next 2 – 3 years anticipated 10 million tonnes coal, steel and fertilizers. 22

• Nagarjuna power-Udipi- 3 million tonnes coal anticipated commissioning next 2-3 years.

• Belekeri port at Ankola- coal imports in 2007-08 anticipated.

• Vellarpadam container depot(Cochin) work started in March 2007. May take 2-3 years.

• Super thermal power plants at Ratnagiri 2000 MW, Tadri 4000 MW planned.

ADDITIONAL TRAFFIC & REVENUE STREAMS contd.

23

• Ms Dempo Ironworks movement ex Sawanthwadi to Mayem near Goa-3 million tonnes anticipated next 2-3 years.

• In addition, number of minor ports at Revas near Ratnagiri, Redi etc. being developed.

ADDITIONAL TRAFFIC & REVENUE STREAMScontd.

24

SUPPORT FROM MINISTRY OF RAILWAYS

• MOR has been supporting KRCL by way

of extending loans to service its interest

liabilities and also partially to redeem the

bonds.

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FINANCIAL RESTRUCTURING PROPOSALS

1. KRCL would continue as a Central PSU

even after discharge of its debt liabilities.

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FINANCIAL RESTRUCTURING PROPOSALS contd..

2. MOR loans along with interest accrued thereon amounting to Rs 2927.74 Cr. will be converted into non cumulative preferential shares redeemable at the end of 15 – 20 years.

Rs. in Cr.Period Principal Interest Total

Up to 31st March 07

2552.40 375.34 2927.74

27


3. MOR will continue to provide financial assistance to KRCL for full interest servicing and 50% of the redemption of the Bonds for the next three financial years, i.e. from 2007-08 to 2009-10. This will also be converted into non cumulative preferential shares redeemable after 15 years from the date of payment.

Rs. in Cr.Period Redemption Interest Total

2007 – 08

2008 – 09

2009 – 10

57.00

75.00

130.00

175.30

169.51

160.40

232.30

244.51290.40

262.00 505.21 767.21 28


4.The Board of KRCL has also recommended to review the proposed arrangement of financial support for interest and redemption liabilities before lapse of three years.

PROJECTED FINANCIAL PERFORMANCE Rs. in Cr.

Particulars 2008-09 2009-10 2010-11 2011-12

Coaching Earnings 215.00 227.00 234.00 250.00

Freight Earnings 324.00 389.00 467.00 500.00

Other Income 20.00 25.00 30.00 35.00

Total Income 559.00 641.00 731.00 785.00

Operating surplus (PBDIT)

172.00 194.00 217.00 215.00

Finance Charges 180.81 171.70 142.76 127.79

Total Expenditure 648.81 699.70 737.76 778.79

Net Profit/( Loss) (Train Operations)

(89.81) (58.70) (6.76) 6.21

Project Surplus 70.00 85.00 100.00 125.00

Depreciation 81.00 81.00 81.00 81.00

Net Profit/(Loss) (21.31) 24.55 91.24 128.96

Total Debt 2233.50 1973.50 1910.00 1640.00

Net worth 1023.98 1338.53 1429.77 1558.73

Debt/Equity ratio 0.53 0.44 0.42 0.3630

BENEFITS OF FINANCIAL RESTRUCTURING

• NET-WORTH WILL BECOME POSITIVE

• DEBT-EQUITY RATIO WILL IMPROVE

• INSTRUMENT FOR TURNAROUND

• WILL BE ABLE TO UNDERTAKE MAJOR PROJECTS

31

THANK YOU

32

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