Varinder Bansal of CNBC-TV18 analyses a few companies that may get the stick from the RBI on account of poor interest coverage ratios.
The Reserve Bank of India on Tuesday announced a new scheme to restructure corporate debt which will benefit companies with unsustainable debt. Varinder Bansal of CNBC-TV18 analyses a few companies that may get the stick on account of poor interest coverage ratios.
The framework, termed Scheme for Sustainable Structuring of Stressed Assets, envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.
Thus, a bank can split the 'sustainable' and 'unsustainable' debt portions of a firm, making provisions for each separately, and converting the sustainable levels of debt into equity or quasi equity instruments. However, the sustainable proportion of debt must not be less than half the loans of a company.
Sunflag Iron with a debt-to-EBIDTA ratio of 1.4 and interest coverage ratio at 2.4 becomes a candidate for the debt restructuring exercise.
Prakash Industries and Sarda Energy too are eligible under the scheme with interest coverage ratio of 1.8 and 1.2, respectively.
On the other hand, foundry company Electrotherm is likely to be disqualified under the proposed Scheme for Sustainable Structuring of Stressed Assets as its Q4FY16 debt-to-EBIDTA stands at -81.6 against a interest coverage ratio of -3.8. Similarly, Monnet Ispat and Jai Balaji Industries have debt-to-EBIDTA ratio of -47.5 and -31.6. Their respective interest coverages for the quarter gone by are -0.8 and -0.5.
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