Four days have passed since a portion of the Vivekananda Flyover collapsed in Kolkata. The toll has so far reached 27. With rescue operations still underway, there are likely to be more dead.

In these days, there have emerged two pictures – one of a troubled civil engineering project and the other of a struggling company. The company building Vivekananda Flyover, Hyderabad-headquartered IVRCL, had missed many deadlines. Also, this wasn’t the only project it was struggling with.

In 2010, as The Telegraph reported, the Indian Navy hauled up IVRCL for “gross lack of commitment” in building the Indian Naval Academy in north Kerala. In 2011, the Uttar Pradesh Jal Nigam blacklisted the company. The Rail Vikas Nigam, an arm of Indian Railways, cancelled four contracts given to it in 2013, citing lapses. In February this year, Jharkhand blacklisted it citing its poor performance on a rural electrification project. The company also received flak from state governments such as Andhra Pradesh.

Meanwhile, the company had seen its financials worsen. From financial year 2008 to financial year 2015, IVRCL’s debt rose five-fold from Rs 1,725 crore to Rs 9,386 crore. In the same period, it slipped from a net profit of Rs 284 crore to a net loss of Rs 1,424 crore.

Things got so bad that, last December, a consortium of banks converted a part of their loans to the company into equity. At the time of the collapse of the overpass, 51% of IVRCL was owned by banks.

So why did a section of the flyover fall? In an initial response, a senior manager of IVRCL described the collapse as an “act of god”. However, senior executives in the infrastructure industry suspect something more prosaic than flyover-hating Divinity. These executives suspect there could be a connection between IVRCL’s worsening finances and the collapse.

A look at IVRCL

IVRCL works on a spectrum of civil engineering projects – from drinking-water projects to hydel power; from irrigation to desalination; from highways to tunnels; and from townships to transmission lines.

Some of these are projects that the company built and now operates. Others were pure construction contracts. IVRCL built them and handed them over to clients. The Vivekananda Flyover, for instance, was to be handed over to the Kolkata Municipal Development Authority.

How do such companies make money? On projects they own, they make the investments – mainly money borrowed from banks – and then repay the loans and make profits when operations start by, say, collecting toll on highways or by selling hydel power. On projects they build as contractors, they usually get paid in tranches as their work crosses predetermined milestones.

In the case of IVRCL, this model seems to have run aground. It’s not clear why. One thing that is clear is that the company was strapped for cash.’s attempts to meet the company’s management were in vain. On Saturday, when this reporter visited IVRCL’s office in Hyderabad’s tony Banjara Hills, he was not allowed to meet anyone. “Our top management is travelling,” said the lady manning the reception. “Only junior employees are in office. And they cannot talk to you.”

Usually, when companies are cash-strapped, they start moving money around from one project to another, trying to meet more expedient expenses, explains Vinayak Chatterjee, managing director of Feedback Infra, a Gurgaon-based infrastructure consultancy. For instance, a company which gets a bank loan for building a bridge but has to urgently make the next instalment on a bank loan might divert the money. At times like this, Chatterjee added, “The focus of the management moves away from operations to the financial condition. And that is when work starts to suffer.”

A report in the Indian Express on Sunday says that forensic teams have “identified pillar no. 40 as the point of the collapse”. Cracks, it says, were reported on the girder of this pillar.

The bigger picture

In some ways, IVRCL points to some of the ills in the country’s infrastructure space, according to people in the industry.

In the last 25 years, India has seen a clutch of unknown companies grow rapidly in the infrastructure space. Most of these have funded their expansion through bank loans.

As per RBI norms, a company taking a bank loan for building an infrastructure project has to put up 20% of the investment. This clause acts as a brake on the growth of companies. Going by it, a firm with Rs 100 crore cannot borrow more than Rs 400 crore.

But, over the years, India has seen several infrastructure companies – if not all – sidestep that requirement to grow faster. They do this by “over-invoicing” – meaning, a company exaggerates the cost of a project and pulls in a larger bank loan than what it needs. The surplus money is then re-circulated as the promoters’ equity into that very project or into some other project.

It’s a problematic strategy. It leaves the company with no skin in the game – it does not lose if the project doesn’t do well. At the same time, it also exposes them to high risk if the project runs into delays. And delays, alas, are endemic in the Indian infrastructure sector – if not due to demands by local communities for fairer rehabilitation, then due to rent extraction by local satraps.

Delays can be calamitous for civil engineering projects. A long hold-up inflates a project’s raw materials bill immensely. It also means that the project will take longer to generate revenues – and that, in the meantime, the company is sitting on a lot of debt that it needs to retire.

The rest is predictable. These companies step onto a treadmill where they keep signing new projects in order to attract fresh bank loans. When bank money dries up, they start diverting funds towards more expedient needs, and the pace of infrastructure building slows down. At the same time, if shortcuts are taken, India gets low-quality infrastructure.

In case things turn really bad, banks get saddled with non-performing assets.

At present, India is not very clear on how to manage this mess. Banks can force companies into loan restructuring. In extreme cases, as in IVRCL, they can even acquire a majority stake in the company.

But as a senior manager in the mining industry said on condition of anonymity: “Though the banks now control over 50% of the equity, the company is still run by the promoters who previously ran the company into default.” In any developed country, he added, “the majority owners would certainly throw out the original promoters in these bankrupt companies and find a new set of Executive Directors to run the companies and recover as much of their money before selling it off [in whole or in parts]”.