Corporate Debt Restructure
Introduction:
Kingfisher airlines, JSW steel, Essar oil, Essar steel, HCC and so many Indian corporations have financially stressed balance sheets. Because of the poor performance of these companies and huge debts their continuing existence in the future is a matter of concern. So all those companies facing financial turmoil should consider a number of options to achieve restructuring or liquidity. There are six ways for them to achieve the desired results. These include winding up, arrangements or compromises under the Companies Act, restructuring under the Sick Industrial Companies (SIC) Act, reconstruction of assets under the Securitization, Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act, and restructuring as per specific governing statutes which is mostly in the case of public sector banks and insurance companies. Lastly, informal debt restructuring as per the RBI guidelines also provides a forum to address these concerns.
So Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.
Why CDR and who will beneficial :
Debt restructuring is denoted as Greening of loans (!).IT gives lenders a unique opportunity to avoid being encumbered with non-performing assets (NPAs) arising out of corporate accounts. The lenders interest lies in recovering the principle amount lent to Company along with returns on that investment.
Impacts of NPA on lenders operation 1. The interest income of banks will fall and it is to be accounted only on receipt basis. 2. Banks profitability is affected adversely because of the provision of doubtful debts and consequent write off as bad debts. 3. Return on Investment (ROI) is reduced. 4. The capital adequacy ratio is disturbed as NPAS are
Kingfisher airlines, JSW steel, Essar oil, Essar steel, HCC and so many Indian corporations have financially stressed balance sheets. Because of the poor performance of these companies and huge debts their continuing existence in the future is a matter of concern. So all those companies facing financial turmoil should consider a number of options to achieve restructuring or liquidity. There are six ways for them to achieve the desired results. These include winding up, arrangements or compromises under the Companies Act, restructuring under the Sick Industrial Companies (SIC) Act, reconstruction of assets under the Securitization, Reconstruction of Financial Assets and Enforcement of Security Interest (SRFAESI) Act, and restructuring as per specific governing statutes which is mostly in the case of public sector banks and insurance companies. Lastly, informal debt restructuring as per the RBI guidelines also provides a forum to address these concerns.
So Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.
Why CDR and who will beneficial :
Debt restructuring is denoted as Greening of loans (!).IT gives lenders a unique opportunity to avoid being encumbered with non-performing assets (NPAs) arising out of corporate accounts. The lenders interest lies in recovering the principle amount lent to Company along with returns on that investment.
Impacts of NPA on lenders operation 1. The interest income of banks will fall and it is to be accounted only on receipt basis. 2. Banks profitability is affected adversely because of the provision of doubtful debts and consequent write off as bad debts. 3. Return on Investment (ROI) is reduced. 4. The capital adequacy ratio is disturbed as NPAS are