EPC cos may become largest contributors to CDR pile-up

Engineering, procurement and construction (EPC) firms may become the biggest contributors to the growing pile of corporate debt restructuring (CDR) cases approved, overtaking iron and steel companies that have so far led the spurt in restructuring. Sluggish infrastructure growth and slow project implementation are forcing a number of companies within the engineering space to restructure their debt, said bankers.

As on September 30, there were 20 such cases approved by the CDR cell, contributing R35,543 crore out of the outstanding number of R2,72,286 crore. EPC companies are the second highest contributors to restructured loans, contributing 18.11% of cases currently under restructuring at the cell. As of now, the highest contributors are iron and steel companies, which constitute 21.3% of the recast loans.

?These (EPC) companies are dependent on what happens in the economy. Since growth is slow and there is a marked reduction in the number of projects being announced, these companies are suffering,? said RK Bansal, chairman, CDR cell.

Over the last few quarters, the contribution of EPC companies to total restructured loans has been on an upswing, even as restructuring proposals from iron and steel companies are coming down. In the quarter ended December 31, 2012, EPC companies consisted of 9.35% of approved restructured loans compared with iron and steel that stood at over 23%.

Apart from cases from the EPC space which have already been approved, restructuring of companies like Era Infra and Engineering and Coastal Projects was referred to the cell in October. Era and Coastal projects are looking at restructuring R5,800 crore and R3,575 crore, respectively, which could push up the tally of restructured accounts within the sector.

Bankers say in case of iron and steel companies, most of the large restructuring was completed over the last two years and the rest of FY14 is expected to be better for the sector. However, in the case of EPC firms, bigger companies are only now beginning to approach the cell.

?The overall pace of restructured loans is likely to be high owing to these companies and the situation will not change till at least March,? added Bansal.

The corporate debt restructuring (CDR) cell saw loans worth R23,425 crore referred in October, the largest amount of loans referred to the cell in a single month.

Bankers expect referrals to the CDR cell during FY14 to cross R1 lakh crore. Since April, the referrals have already reached near R88,000 crore. In the April-June period, the cell saw referrals worth R39,251 crore, while in July-September, this number stood at R24,859 crore, according to data released by the CDR cell.

Under new Reserve Bank of India rules, banks need to set aside 5% of the fresh restructured loans as provisions. If the loans turn bad, the provisioning goes up to at least 15%. Higher provisioning affects profitability of banks. In 2012-13, banks restructured over R75,000 crore of loans under the CDR mechanism, nearly double the level in 2011-12.