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CORPORATE DEBT RESTRUCTURING

CORPORATE DEBT RESTRUCTURING. INTRODUCTION.

darius-padilla
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CORPORATE DEBT RESTRUCTURING

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  1. CORPORATE DEBT RESTRUCTURING

  2. INTRODUCTION CDR can be described as a proactive measure to not let companies land into a troublesome financial situation from where they cannot make a recovery. It can be explained as a voluntary and non regulatory method for organizations to deal with their dues. This is done by • Increasing the time needed to pay the debts back and bringing down the rates. • In some cases, the creditors forego certain amounts of the debt amount in lieu of equity positions in the organization.

  3. OBJECTIVE AND BENEFITS • To support continuing Economic Recovery • Enabling Viable Debtors to continue business operations • Promoting fair and equitable debt repayment to creditors • Revival of viable Corporates (genuine cases)

  4. RECENT TREND IN CDR • As of June 30, 2013 the total approved cases for Corporate Debt Restructuring(CDR) stand at 415 and the debt involved is over Rs 250,279 crores. • 61.22% of the approved cases involving Rs 153,384 crores pertained to 6 industries viz. Iron & Steel (21.41%), Infrastructure (13.86%), Textiles (8.26%), Power (7.38%), Construction (5.74%) and Telecom (4.67%). • The remaining 38.78% involving Rs 96,895 crores is spread over 32 industries.

  5. FACTORS RESPONSIBLE FOR INCREASE IN CDR • The increase in resorting to restructuring can be partially attributed to excessive leveraging by some borrowers. • Deficiencies in the manner in which project appraisal is conducted especially with regard to cash flow analysis and determination of the date of completion of projects.

  6. METHODS TO CURB THE SURGE IN CDR CASES • Proper due-diligence • Utmost care should be given to evaluating the companies which are primarily engaged in cash-based businesses • Promoters may be restricted from reducing their stake in the company • While working on CDR a distinction can be made between the corporates which were impacted adversely by the extraneous factors beyond their control.

  7. CDR Structure Standing Forum & Core Group Empowered Group (EG) CDR Cell • Lays down policies & guidelines to be followed by EG and CDR Cell for debt restructuring • Comprise of MD and Chairman of Banks & FIs along with Executive Director of RBI. • Comprise of ED level representative of Banks & FIs who have exposure in the concerned company • Decides whether the restructuring is feasible or not and potentially viable. • Initial scrutiny of proposal • Prepares detail restructuring plan if feasibility approved by EG.

  8. Lenders/Borrowers submits the restructuring proposal to CDR cell Initial scrutiny by CDR Cell by calling for proposed rehabilitation plan & other information Time frame 30 days Found Feasible Proposal forwarded to Empowered Group for approval/modification/rejection Approval from EG Time frame 90 Days, could be extended to 180 days • Preparation of detailed restructuring plan by CDR Cell with help of creditors and experts from outside (if required) • To be approved by Empowered Group by • Super Majority vote (By value ≥ 75% & By number ≥ 60% ) • Issuance of Letter of Approval • Issuance of Letter of Approval Time frame 120 days

  9. CONCLUSION Hence, from both economic and social perspectives, it would be imperative for the banking system to consider CDR requests from the companies which were impacted genuinely by external factors and also, equal consideration should be given to smaller underprivileged customers.

  10. THANK YOU

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