Afcons drops loan repayment plan to Shapoorji firm after Sebi questions use of IPO proceeds

As of September 30, 2023, Afcons has 67 active projects across 13 countries, aggregating to an order book of ₹ 348.88 billion.

Shapoorji Pallonji group’s flagship construction firm Afcons Infrastructure, has dropped its plans to use part of its IPO proceeds to repay a loan taken from a related party - Shapoorji Pallonji Finance Pvt Ltd - which is categorised as part of the promoter group of Afcons.

The change came after the company received observations on its draft red herring prospectus from markets regulator Securities and Exchange Board of India (SEBI) and the stock exchanges, as per an addendum filed by the company with SEBI.

The development highlights the increased scrutiny of IPO documents by the market regulator.  A buoyant primary market has been attracting a record number of companies attempting to make a public debut, with retail investors participating heavily in IPOs, seeking to make handsome returns on listing day.

As part of the plans outlined in the draft red herring prospectus filed on March 28, Afcons had proposed that it will use the fresh proceeds of the IPO to repay a Rs 100 crore financing facility led by Central Bank of India along with Shapoorji Pallonji Finance Pvt Ltd in a co-lending arrangement, where Central Bank of India has a 75% share and Shapoorji Pallonji Finance has a 25% share.

The loan was taken in July 2023 for working capital requirements and for payment to vendors and carries an interest rate of 10.95 percent.

Out of the total fresh proceeds of Rs 1,250 crore proposed to be raised from the IPO, the biggest chunk of Rs 500 crore was reserved for repayment of certain loans availed of by Afcons. Apart from its promoter group company, other lenders that are proposed to be repaid from the IPO proceeds include State Bank of India, DBS Bank and HSBC.

Net debt of Afcons increased to Rs 2,172.4 crore as of September 30, 2023, as against Rs 1,234.8 crore as of March 31, 2023.

Following the SEBI observations, the Rs 100 crore earlier earmarked for Shapoorji Pallonji Finance loan has now been reallocated towards repayment of loans of similar amount from State Bank of India, the filings show.

An email sent to Afcons did not elicit a response till the time of publishing the article.

The Rs 7,000 crore proposed IPO of Afcons consists of an offer for sale of shares worth Rs 5,750 crore by promoter entity Goswami Infratech Private Limited and a fresh issue of Rs 1,250 crore, which will be used for capital expenditure, meeting working capital requirements as well as for debt repayment.

Also Read: Shapoorji Pallonji Group firm Afcons Infra files draft papers to raise Rs 7,000 crore via IPO

The flagship infrastructure engineering and construction company of the Shapoorji Pallonji group has, over the last 10 years, completed 76 projects across 15 countries with a total historic executed contract value of ₹ 52,220 crore.

As of September 30, 2023, Afcons has 67 active projects across 13 countries, aggregating to an order book of ₹ 34,888 crore.

Some of the major projects executed by Afcons include Chenab bridge in Jammu and Kashmir, the Atal tunnel in Himachal Pradesh and the Mahatma Gandhi Setu bridge in Bihar.