Infrastructure India says that Distribution Logistics Infrastructure Limited (“DLI”) has, along with the wider logistics sector in India, experienced a dramatic deceleration of cargo movements in the immediate aftermath of the Government of India’s announcement of demonetisation and official withdrawal of certain high value currency denomination notes from circulation. India is an overwhelmingly cash economy with an estimated 90% of daily transactions completed in cash and the lack of available legal tender impeded both households and commerce.
Cargo movement volumes have since, as indicated in December 2016, been gradually improving – but recovery to levels seen before the announcement of demonetisation remain subject to recovery of the underlying sectors, in particular manufacturing.
Despite the market challenges, DLI’s Nagpur terminal continues to operationally progress. The facility commenced stuffing of export containers in December 2016, received approval for public bonded warehousing in January 2017 and received quarantine clearance for timber in February 2017.
Additional funding had been expected to have been available to DLI following the flexible restructuring of its debt, but the implementation of the restructuring by the lending banks has proceeded very slowly. Although partial release of funds commenced in February 2017, DLI has not been able to operate at full capacity and with the added impact of demonetisation and compressed margins across the sector, it will be difficult for DLI to generate an operating profit this fiscal year. The Board of IIP is assessing DLI’s funding requirements, its reliance on banks and the ongoing difficulties in accessing approved funding.
The Board of IIP is also exploring refinancing options in relation to the US$17 million GGIC, Ltd. working capital facility maturing on 10 April 2017.
Cessation of DLI Incentive Agreement
On 10 April 2015 it was announced that IIP had entered into a DLI incentive agreement with Mr Vikram Viswanath. Since Mr Viswanath stepped down from the IIP Board in late 2015, he has had no formal role with IIP and his involvement with DLI has diminished over time such that he does not form part of, or act as adviser to, the management team of DLI. In light of this, IIP and Mr Viswanath have mutually agreed to terminate the Incentive Agreement with immediate effect. No incentive payments have been paid under the Incentive Agreement.
IIP : Infrastructure India reveals problems with logistics investment