Companies with debt of around Rs 32,000 crore have failed at the corporate debt restructuring cell (CDR) in five months of FY18, taking the total failures since inception of the cell in 2001 to Rs 1.69 lakh crore.
Data from the CDR cell showed that a bulk of the failures – Rs 29,830 crore – occurred in August. Bankers FE spoke to said that debt recast of six large companies failed in August owing to lenders referring several companies to the National Company Law Tribunal (NCLT) and also because of their inability to meet CDR conditions. The list includes Era Infra (Rs 5,100 crore), IVRCL (Rs 6,500 crore), Electrosteel Steels (`6,400 crore), Coastal Projects (Rs 3,700 crore), Orissa Manganese & Minerals (Rs 3,700 crore).
The RBI, had on June 13, asked banks to refer a dozen troubled companies — with a combined debt of close to Rs 2.4 lakh crore — to the NCLT, following several failed attempts at loan recovery.
Since inception, the cell has approved loans worth Rs 4 lakh crore. In FY17, lenders had referred just one loan, Gangakhed Sugar & Energy worth `350 crore, to the cell in January, taking the total referral since inception to Rs 4.74 lakh crore. Banks had last referred a loan in March 2015 following which restructuring rules changes and banks stayed away from the CDR cell.
Large CDR failures in FY17 include Rs 10,000-crore loan recast of loss-making shipbuilder ABG Shipyard, PSL (`3,300 crore), Visa Steel (`2,400 crore), Moser Baer India (`2,050 crore), Shiv-Vani Oil & Gas Exploration Services (`2,100 crore).
The primary reason for CDR failure is the inability of promoters to infuse the requisite equity capital in the defined period and non-compliance to CDR agreement in pledging shares in favour of the consortium of lenders. The restructuring schemes also often fail because promoters are unable to sell non-core assets to mobilise resources as promised.
While the moratorium is generally maintained at two years, lenders need to estimate when the company is able to start servicing its debt. If a company can’t generate sufficient cashflow even after five years of recast, then it is not considered viable to be recast.
In 2014, four other companies, with a total debt obligation of R14,000 crore that had been restructured to make it easier for them to repay their loans, failed at the CDR cell. Once the asset is out of the CDR fold, banks have the option of either writing it off or keeping it on their books as an NPA They can also sell the loan to an asset reconstruction company as they did with Bharti Shipyard (`5,800 crore) and Hotel Leelaventure (`3,000 crore).
The CDR cell, which has been inundated with requests, did not receive any recast requests in FY18 and just one request in FY17. Lenders approach the CDR to provide some relief to companies under stress by means of reducing the rate of interest being paid.