23 cos to exit CDR cell to put up fresh loan recast cases
Amidst rising number of bad loans, the Corporate Debt Restructuring (CDR) cell has shortlisted around 23 potential companies based on certain parameters for their exits from the forum. Soon, it will hold meetings with their member lenders to chalk out the schemes of exits, a source told moneycontrol.com.
Even as bad loans continue to grow at a brisk pace, there appears to be a ray of hope. The Corporate Debt Restructuring (CDR) cell has shortlisted around 23 potential companies based on certain parameters for their exit from the CDR cell. Soon, it will hold meetings with their member lenders to chalk out the schemes of exits, a banker with the direct knowledge of the development told moneycontrol.com.
Those companies had entered the cell in between 2001-2008 with a total debt of around Rs 18,000-19,000 crore but over a period of time they have come out of the woods.
"This move will help CDR cell to make space for the upcoming debt restructuring cases. Some capacity has to be created to accommodate fresh cases as well. If certain companies have the potential to show consistent financial performance, there is no logic to keep them within the cell," said the source who did not wish to be named.
Under the regulatory framework of the Reserve Bank of India (RBI), the CDR cell is a joint forum, which caters to an official platform for both the lenders and borrowers to amicably evolve policies for restructuring debt.
To select 23 companies, the CDR cell has apparently laid down some conditions: 1) a company has achieved more than 25% growth in EBITDA (earnings before interest, taxes, depreciation and amortization) for the last two years (FY12 & FY11). EDITDA is a measure of company’s financial health and profitability. 2) It has got a windfall profit and declared a dividend of more than 10% in financial year. 3) It has completed the mandatory period of debt restructuring (generally 7-10 years) and accordingly, the repayment time is also over.
If a company satisfies all the conditions, it has to leave the cell through a scheme of exit, according to the latest decision by the CDR cell. Some of those companies include Neelachal Ispat Nigam (debt at about Rs 1,400 crore), India Cement (at Rs 1,100 crore), Wockhardt (at Rs 310 crore), Southern Petrochemical Industries Corporation (at Rs 2,040), Nagarjuna Fertilisers (at Rs 400 crore) and others. Recently, Essar Oil, which was referred in 2003-04 for a debt of around Rs 2,300 crore got approvals to exit the CDR cell.
Loan restructuring is the process when a borrower is unable to make timely repayments and approaches the lender to dilute the original terms under which the loan was sanctioned. This could include lowering of interest rates, or extension of tenure.
On Thursday, the rating agency Crisil estimated that total loans restructured by banks may increase sharply to Rs 3.25 lakh crore as against Rs 2 lakh crore expected earlier in April. In July alone, 19 fresh cases were referred with total loan value at Rs 11,000 crore. However, seven fresh cases (at around Rs 2,200 crore) have been reported in August.