Last week ABG Shipyard reached its lenders for restructuring of loans worth Rs.11,500 crore. It is just one of the many companies which have applied for debt restructuring in the recent past. Orchid Chemicals, Lanco Infra, IVRCL, Educomp and Abhijeet Group companies have already applied for CDR since March 2014. Data suggests an alarming increase in the number of companies applying for Corporate Debt Restructuring. In just concluded financial year 2013-14 a total of 622 cases of CDR were put forth to CDR cell out of which 476 cases were approved, causing loans worth Rs. 330444 crore to be restructured. These figures suggest that all is not well with Indian industry.
At this point it becomes imperative to understand what Corporate Debt Restructuring entails. In simple terms CDR involves reducing the debt burden on a company by reducing the interest rate on debt and increasing the time the company has to pay back the debt. This improves the ability of the company to meet the obligations. In addition, some of the debt may be forgiven by creditors in exchange for an equity position in the company.
An analysis of data on CDR reveal that between 2008-09 to 2013-14, total references received by CDR cell increased by a whopping 349% , while the total approval rate increased by 282% (based on the value of loans to be restructured). Even after adjusting the figures for inflation (assumed to be constant at 9% during the said period), the growth rates stood at alarming figures of 192% and 148%. These figures reflect only the amount of loans restructured under CDR platforms. Banks also restructure loans outside CDR mechanism.
These statistics give a clear indication of the hardships that Indian industry is facing. Policy paralysis, slow e...
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...ed loans have increased in value to Rs. 330444 crore showing that corporates are not even able to make interest payments on their debts.
Road Ahead
Going by the regression results, and with IMF predicting India’s GDP to increase to 5.4% in 2014-15 and 6.4% in 2015-16, we can expect the industry to improve in terms of its loan repayment capability. This is a good sign for sectors which have so far stayed beaten down in post sub-prime crisis era.
At the same time our analysis gives warning signals to investors to stay away from sectors such as Infrastructure and Textiles which have high CDR demands. Investors can look to invest in companies that are active in sectors such as Hospitality, Pharmaceuticals, Information Technology and Fertilizers as data on applications made to CDR cell suggests that these sectors have stayed resistant to macro-economic volatilities.
The trustees have reduced the organization to the extent necessary for the settlement of the bankruptcy. The loan portfolio in the Netherlands is not sold and therefore, all services of the bank have continued since the bankruptcy, except that the bank does not advise, close new contracts or initiate new loans, nor offer pay services. Company A currently loans more than €5 billion, of which €2 billion is securitized, to over 100.000 customers. There are still approximately 100 employees active for the bank. The interest repayments which Company A receives on the loan portfolio are used to pay costs and remittances to organizations who manages the securitizations and pledgees. What remains is be paid to creditors. To date, the trustees have paid out 74% to creditors. No additional distributors are expected for the coming five years. Each quarter, the trustees report on their activities. The trustees also publish an annual financial report each subsequent
As higher investors generally expect higher returns for a more leveraged firm (Arnold 2013 p 697) there would appear to be very little scope for the RM to increase its debt capital unless it can convince investors profits are likely to profit significantly. Unfortunately the annual report does not suggest such growth is likely short term, due to increased parcel competition and falling letter sales (RM 2015).
Due to technological advancements in the early 2000s, the paper checking industry took a big hit, especially Deluxe Corporation. Their sales and earnings started to decrease and they had already exhausted all resources to repurchase stocks from their shareholders. Therefore, they decided to assess their debt policy at the time, trying to balance an appropriate
Debt financing has both advantages and disadvantages. Debt financing is a business’ way to start up, expand, or recover by borrowing money from a preson or company. The money borrowed has to be paid back along with the interest that was accrued during the length of time the loan was carried out. This option is great for company’s that do not want investors. Debt financing is beneficial because the loaners do not often get involved with the company or any decision making within the company. The downfall is the risk that is assumed with the debt which is, the company may not be able to pay back the loaner. In that case, the loaner would go after the owner or partner personally. There are many forms of debt a company is allowed to take on, such as ‘venture’ debt, even if they are a high-risk corporation. ‘Venture’ debt is a form of senior debt ...
The debt used to acquire Salomon has been an important issue for the finances of the company. Although financially storng and unlikely to default, the company needs to look into reducing its debt to increase its profitability.
Rohan Perera, was unable to submit audit report at dead line given by the Central Bank. He requested to extend the deadline by stating that more time required for conducting the external audit. The bank also did not have customer grading system. Therefore it lost the chance of customer monitoring. When granting a loan to a customer the bank adopted poor policy. The credit department did not have followed the written manual offered by the Central Bank which should follow before granting a loan. The bank has granted loans without proper evaluations about the customers. Loans had granted to the customers who had no any contractual agreement. Granting fresh loans to recover overdue loans was a general practice followed by the
India's strategy for development has had many critics. It was pointed out that the emphasis on heavy industry
Projected to be the world's most populous country by 2025, India is a fast growing country that potentially could become the leading economic system in the world. Chevrolet, a part of General Motors a United States company, is one of the top brands of vehicle sales in the United States, in which most are manufactured in India. Chevrolet is currently selling models specifically made for the India market in India, but most of Chevrolets involvement in India is through manufacturing. India’s topography, demographics, economy, government, business customs make India a poplar destination for business to manufacture, and import and export goods.
Foreign banks began to reduce their holding in Indian Equities which leads to decline in stock price and weakening the currency. Since majority IT firms derive their revenue from US economy, thereby IT enabled services significantly hit by subprime crisis. In addition, coming recession in US has led to decline in demand for exports hence cause loss in export earning of India as well as cause unemployment or loss of
Once change is that advance refunding is no longer available. Advance refunding allowed organizations to refinance a debt before a standard set period without penalties (Arduino, n.d.). For Creekside Community Hospital to improve its debt ratio, it will need to find ways of remaining flexible. In making investments, Creekside Community Hospital will want to look for funding with the language indicating the organization has flexibility at the time of interest rate reset. In doing so, this will allow the organization and lender to make mutual changes, such as interest rate set and negotiates the interest rate (Arduino,
It is after 1991 that the Indian government has introduced several changes in the Indian markets like the de-regulation of the markets in India. This has helped in the removal of the bottle necks that were responsibl...
Barra Airways has an interest coverage ratio (ICR) of 18; this means that Barra Airways is not burdened with a large amount of interest payments on existing debts. Therefore, using debt does appear to be an attractive source of finance. This is because Barra Airways existing interest burden is low, meaning that to increase it would have a reduced effect on the company’s net profit. However, EasyJet has an ICR of 30.88, considerably larger than that of Barra Airways [5]. Lenders may look at this data and conclude that Barra Airways is a riskier company to lend too than others in the same industry; this will result in a higher interest rate on any debt taken out.
Wilson, Beth Anne, & Keim, Geoffrey N. (2006). India and the Global Economy. Business Economics, 41(1), 28-36.
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