N Africa, Mid-East crisis hurts Indian infra, cap-goods cos

The political unrest blowing across North Africa and the Middle East has stalled projects of many Indian infrastructure and capital goods companies and knocked their shares to new lows.

Big and small infrastructure and capital goods firms like Bharat Heavy Electricals (BHEL), Punj Lloyd, Gammon India and Larsen and Toubro either have orders or are already executing projects in the region.

"There have been reports of theft of equipment and material in these regions, and the actual damage is still to be evaluated," said Abhinav Bhandari, sector analyst at Elara Capital, adding that insurance doesn't typically doesn't cover political risk.

The crisis has helped to maul the share prices of some operators by as much as 76%, since the revolt started in Egypt on January 25 , against an 8% rise in the benchmark index.

Punj Lloyd, whose shares have lost 66 percent since January 25, has an order backlog of Rs 3,589 crore (USD 793 million) in Libya alone. The company's major oil & gas and infrastructure projects there are on hold until the situation normalises, according to a company spokesman.

"We have incurred expenses on the civil infrastructure projects and we remain net cash positive on these projects till date. These projects are now on hold but as soon as the situation in Libya normalises, work on the projects will resume," a Punj Lloyd spokesman said.

"Our projects in Libya are insured but insurance does not cover political risks. However, there is political risk coverage from ECGC (Export Credit Guarantee Corporation of India) for our onshore rigs," said the spokesman, who did not want to be named.

Voltas has 66% of its 3,100 crore orderbook from the Middle East, a company official said, mostly in the United Arab Emirates and Qatar, which have not seen any recent unrest.

"We don't really have a exposure in any country which has trouble right now, or potentially could have trouble going forward," M M Miyajiwala, Chief Financial Officer of Voltas, a Tata group company, said last week.

Libya crisis

Preeti Samtani, vice president at financial services firm GEPL Capital, said Punj Lloyd has the biggest exposure to the region.

"While Voltas is not affected at the moment, the crisis could impact the company in case of it spreading to other countries in the region, like Oman. Both these companies have huge order book in the region," she said.

Oman has seen protests for political and wage demands.

State-run BHEL, which has won 900 megawatts of power projects from the Libyan government in recent years, was in the final stages of commissioning its sixth turbine in the country when the trouble started, a spokesman said.

BHEL also won a power project order worth USD 393 million from Yemen, another site of recent unrest, in late February.

Analysts said that once the situation normalises, the same companies may be in line for new projects, but it is unclear when that will happen.

For now, industry participants are hoping that there are limited negative cash flows from the projects in hand.

"I am assuming that the companies would have more or less got all the receivables, except for the last one or two months. These pending receivables would be settled once the civil turmoil comes to rest," Elara's Bhandari said.