Selling A Pipe Dream

A Gujarat government company once credited with the ‘biggest ever’ natural gas reserve find in the country is now burdened with a Rs 13,000 crore debt and desperately needs a bailout.

- Kaushik Deka

On August 27, Congress leader Jairam Ramesh cited a Reserve Bank of India (RBI) notification to demand that the State Bank of India (SBI) declare the Gujarat State Petroleum Corporation (GSPC) bankrupt by the end of the day. Ramesh referred to the RBI’s circular issued on February 12 which states that lending banks should initiate bankruptcy proceedings against companies that default on loan repayments of Rs 2,000 crore or more if a resolution plan is not worked out within 180 days of the default, beginning March 1.

Ramesh’s argument, however, was erroneous. For GSPC, India’s second-largest gas trading company, in which the Gujarat government owns 86.89 per cent equity capital, owes the outstanding amount to not one but 19 commercial banks. The highest outstanding—Rs 1,459 crore as on July 31, 2018—is against SBI. More importantly, the company has not defaulted on repayments till now.

The misfire by the Congress, though, doesn’t take away the fact that GSPC is in a deep financial mess. Its outstanding debt, as on April 13, stood at Rs 13,200 crore, with losses registered in 2017 at Rs 16,603 crore. The company has been struggling to bring the outstanding to under Rs 7,500 crore, considered a sustainable debt level. Credit rating agency Crisil continues with its rating BBB+ (‘Rating Watch with Negative Implications’) for GSPC. At a time when Indian banks are struggling with non-performing assets (NPAs) to the tune of over Rs 10 lakh crore, GSPC is a big dampener to the Narendra Modi government’s efforts to restore the health of the Indian banking sector.