Lanco Infratech Ltd. - Quarterly/Annual Result Disclosures and Notes dated 30 Sep 2017

NOTES IN RELATION TO THE FINANCIAL RESULTS

1. Hon'ble National Company Law Tribunal (NCLT), Hyderabad Bench vide order dated August 07, 2017 has initiated Corporate Insolvency Resolution Process (CIRP) in the Company under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), based on the application filed by IDBI Bank Limited, Financial Creditor of the Company. Mr. Savan Godiawala (IP Registration No.IBBI.IPA-001/IP-P00239/2017-18/10468) was appointed as Interim Resolution Professional (IRP) with effect from August 07, 2017 under the provisions of IBC. In the first Committee of Creditors meeting dated September 12, 2017, Mr. Savan Godiawala has been confirmed as Resolution Professional. It may be noted that these unaudited financial results pertain to the period partially prior to the commencement of CIRP and have been certified by Mr. G Venkatesh Babu, being the Managing Director1 & Chief Executive Officer of the Company. The Resolution Professional has relied upon assistance provided by members of the Audit Committee in review of the aforesaid unaudited financial results and representations, clarifications and explanations provided by the Managing Director & Chief Executive Officer, Chief Financial Officer, other directors and Key Managerial Personnel of the Company in relation to such financial results in the meetings called by the Resolution Professional. The reviewed financial results have been examined and recommended by the directors of the Company constituting the Board of Directors of the company (powers of whom stand suspended in accordance with IBC) and accordingly, the Resolution Professional, in reliance of such examination by the directors of the Company and the aforesaid representations, clarifications and explanations, has approved the same. It is clarified however that the Resolution Professional has not conducted an independent verification of these unaudited financial results and has not certified on the truthfulness, fairness, accuracy or completeness of these results, in so far as it pertains to the period prior to commencement of the CIRP and his appointment.

2. Exceptional item includes:

a) The company acquired Griffin Coal Mining Company Pty Limited and Carpenter Mine Management Pty Limited referred as Griffin Coal Mine Operations through its erstwhile wholly owned subsidiary Lanco Resources International Pte Limited (LRIPL) to further invest in expansion to enhance the capacity. Post-acquisition many approvals were obtained for mine expansion and other infrastructure related facilities. LRIPL along with its subsidiary companies (Griffin Coal Mine Operations) has been incurring losses from acquisition onwards. Due to circumstances beyond the control of company, the mine expansion got delayed, resultantly anticipated incremental EBIDTA could not be earned, thus increasing the loans from the lenders to meet the interest obligations. Due to default in debt servicing, as per the Security Agreement entered by LRIPL with lenders, lenders appointed the Receivers and Managers on April 27, 2017 and transferred the pledged shares to the nominee of the Security Agent of the lenders. Consequent to this, during the previous quarter, impairment provision has been created against the Company’s Investment of Rs. 534.16 Cr, Loans receivable along with interest Rs. 567.27 Cr, and charged off the balance existing in the Foreign Currency Monetary item Translation Difference account of Rs. 9.83 Cr pertaining to the said loans receivable.

b) A provision of Rs. 20.57 Cr is created in the previous quarter for diminution in the value of investment of Lanco Wind Power Private Limited, a subsidiary of the company.

c) A provision of Rs. 130.56 Cr is created during the quarter for possible diminution in the value of investment of Lanco Power Limited (LPL), a subsidiary of the company which is holding the shares of Lanco Mandakini Hydro Energy Private Limited (LMHEPL) directly and indirectly, on account of lenders proposal to invoke change in management (outside SDR) by exercising the pledged shares of the LMHEPL.

3. Mahatamil Mining and Thermal Energy Limited (MMTEL), a subsidiary of the company had entered into Coal Mining Services Agreement (CMSA) with Mahatamil Collieries Limited (MCL) for developing and mining of Gare Pelma Sector II Coal block located in Raigarh district in the state of Chhattisgarh. The allocation of said coal block was cancelled by the Hon’ble Supreme Court’s order dated September 24, 2014. As per CMSA, MMTEL has incurred an amount of Rs. 204.66 Cr till March 31, 2015 towards exploration, infrastructure and performance security deposit. The amount incurred has been claimed by MMTEL as per terms of the Coal Mines (Special Provisions) Ordinance, 2014. The company’s investment of Rs. 90.42 Cr and other advances amounting to Rs. 80.84 Cr made in MMTEL as on September 30, 2017 is considered recoverable from MCL by the management based on the said claim. This is an emphasis of matter in the auditor’s limited review report.

4. Lanco Hoskote Highways Limited (LHHL) and Lanco Devihalli Highways Limited (LDHL), subsidiaries of the company have been incurring losses since commencement of operations and also due to de-recognition of Capital Grant from Reserves as per the requirement of Ind AS 11 Appendix – A on Service Concession Arrangement, the Net Worth has eroded significantly as at September 30, 2017. The Management is taking necessary steps to improve the profitability in future and is of the view that the carrying value of Investment of the company along with its subsidiaries aggregating to Rs. 805.66 Cr in LHHL & LDHL is realizable at the value stated therein. Accordingly, no adjustments have been made in these financials results. This is an emphasis of matter in the auditor’s limited review report.

5. Lanco Hills Technology Park Private Limited (LHTPPL), a subsidiary of the company has been incurring losses and the Net Worth has eroded significantly as at September 30, 2017. The Management is taking various initiatives to improve the profitability, and completion of certain project components through development partners and is of the view that the carrying value of the Investment Rs. 1,332.08 Cr in LHTPPL is realizable at the value stated therein. Accordingly, no adjustments have been made in these financials results. This is an emphasis of matter in the auditor’s limited review report.

6. Lanco Kanpur Highways Limited (LKHL), a subsidiary of the company had entered into concession agreement with NHAI for developing a road project in Uttar Pradesh state under BOOT mechanism. The construction work is delayed due to right of way to be arranged by NHAI. During the FY 2015-16, LKHL had received notice of termination of concession agreement from NHAI, and LKHL issued a notice of termination of concession agreement to NHAI. Arbitration proceedings have been initiated to settle the claims and the counter claims associated with the termination as per the Concession Agreement. Based on the expert legal opinion, the management is confident on the recoverability of its claims submitted and is not expecting any liability on counter claims filed by NHAI. The company invested in LKHL Rs. 196.50 Cr, other advances receivable Rs. 0.23 Cr and received EPC contract mobilisation advance of Rs. 143.54 Cr as on September 30, 2017. This is an emphasis of matter in the auditor’s limited review report.

7. Diwakar Solar Projects Limited (DSPL), a subsidiary of the Company engaged in setting up solar thermal power plant (100 MW), is affected on account of various factors beyond the control of the management. DSPL has filed petition with Central Electricity Regulatory Commission (CERC) for extension of Commercial Operation Date (COD) and to revise the Power Purchase Agreement (PPA) Tariff for viability of the project on the ground that the bid Direct Normal Irradiation (DNI) was different from the actual DNI. The Management is confident upon tariff revision and extension of COD for executing the project. In view of this the company does not foresee any requirement for adjustment in carrying value of investment of Rs. 219.59 Cr as at September 30, 2017. This is an emphasis of matter in the auditor’s limited review report.

8. During the quarter, one of the lenders has recalled its loans given to the Lanco Teesta Hydro Power Limited (LTHPL) an associate of the company and invoked the pledged shares issued by LTHPL as security towards the loan facility amounting to Rs. 296.63 Cr. Vide share purchase agreement dated March 30, 2012, shares held by the company in LTHPL were transferred to Lanco Hydro Power Limited, a subsidiary of the company. The eventual financial obligation on the company is yet to be determined hence no adjustments have been made in these financial results. This is an emphasis of matter in the auditor’s limited review report.

9. During the quarter, one of the lenders has recalled its loans given to the group companies and invoked the Corporate Guarantees issued by the company in favour of those group companies amounting to Rs. 7,266.17 Cr. The eventual financial obligation on the company is yet to be determined, hence no adjustments have been made in these financial results including changes that may be warranted due to exchange fluctuations. This is a matter of qualification in the auditor’s limited review report.

10. During the quarter, certain customers of the Company encashed Bank Guarantees (BG) amounting to Rs. 516.48 Cr provided by the Company towards advances received and performance security. In the opinion of the management the encashed BG value is recoverable from the customer and necessary steps are being initiated. Consequently, no adjustments have been made in these financial results. This is a matter of qualification in the auditor’s limited review report.

11. The Company had been referred to NCLT by one of its lenders and consequently CIRP has been initiated, as detailed in Note 1. During the previous quarter, the Company’s Net worth has been fully eroded. The Company’s ability to meet its contractual obligations involving EPC Contracts, financial obligations to its lenders and investment commitments to group companies is dependent on resolution of the matters as part of CIRP. Currently the Company is in the process of identifying the resolution alternatives, accordingly the financial results are prepared on a going concern basis. This is a matter of qualification in the auditor’s limited review report.

12. Due to constraints in procurement of gas at viable price and also constraints in ensuring power off- take by the DISCOMS, units pertaining to one of the step down subsidiary of the company i.e. Lanco Kondapalli Power Limited (LKPL), is operating on partial load and for partial period. LKPL is hopeful of getting gas supply through government gas pooling initiatives and further hopeful of getting power purchase agreements. Due to accumulation of debt obligations and in the interest of the project, the lenders of LKPL have opted for Strategic Debt Restructuring Scheme (SDR) to facilitate subsequent strategic divestment and conversion of some portion of their debt into equity.

13. Previous period figures have been regrouped, reclassified and restated to conform to those of the current period.

14. The company opted for publishing results on standalone basis as per the Regulation 33 (3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

1. The powers of the Managing Director stand suspended in accordance with the provisions of the IBC and the Managing Director has provided the certifications and representations with responsibility pursuant to the authorization given by the Resolution Professional in respect of the matters pertaining to period prior to insolvency commencement date.