Corporate Debt Restructuring

 

There are occasions when corporate find themselves in financial difficulties because of factors beyond their control and also due to certain internal reasons. For the revival of such corporate as well as for the safety of the money lent by the banks and financial institutions, timely support through restructuring of the loans for genuine cases is given by the Corporate Debt Restructuring Cell (CDR Cell) and it is called Corporate debt restructuring.

The restructuring  of a company’s outstanding obligations, often achieved by the waiver of part of interest or concessions in payment, or converting the un-serviced portions of interests into term loans, reduction in margins, reassessment of credit facilities including working capital, restructuring the management, reduction in equity capital to make more capital available for expansion, conversion of debentures into equity to give relief on the compulsory payment of interest on the debentures. In addition to these, often, additional finance may be sought for bringing about change in the working of the corporation. This allows a company to increase its ability to meet the obligations. 

Corporate Debt Restructuring (CDR) framework in India

 The objective of the Corporate Debt Restructuring (CDR) framework is to preserve viable corporate that are affected by certain Internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme.

A RBI working group has recommended new tighter norms on debt restructuring such as higher contribution from promoters to ensure their full commitment ,a personal guarantee from the promoter which can not replaced with the corporate guarantee,higher provisioning by banks on restructured loans.In case of Personal gurantee banks may verify the quality of assets of the promoters.

 If companies become able to earn good profit, Banks drive out such companies out of CDR Cell

Under CDR, Companies pay about 200-300 basis points lower than what they would have otherwise paid at market rates. In India, Banks under stress with rising loans are planning to drive out companies such as Southern Petrochemicals and Essar Oil out of the Corporate Debt Restructuring Cell; most of these companies which have enjoyed lower interest rates have now turned healthy with nearly 20% operating profit.