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Crisil says half of the mid-sized companies it rates eligible for second round of restructuring

The RBI on May 5, announced a slew of measures to mitigate impact of the pandemic on the businesses and individuals, including restructuring window for small businesses.

May 06, 2021 / 04:30 PM IST
CRISIL  | In the September quarter, Rakesh Junjhunwala held a 5.49 percent holding in the stock, and FIIs have increased its stake to 6.25 percent from 5.55 percent in the June quarter. In FY21 so far the stock price has risen 54 percent to Rs 1927.20 as on October 26.

CRISIL  | In the September quarter, Rakesh Junjhunwala held a 5.49 percent holding in the stock, and FIIs have increased its stake to 6.25 percent from 5.55 percent in the June quarter. In FY21 so far the stock price has risen 54 percent to Rs 1927.20 as on October 26.


Rating agency, Crisil, on Thursday said half of the mid-sized companies it rates will be eligible for  the restructuring window offered under the resolution framework 2.0 announced by the Reserve Bank of India (RBI) as part of the Covid-relief measures.


Companies with relatively weaker credit profiles, and part of low-resilience sectors are expected to benefit more from the scheme, the rating agency said. Amid Covid resurgence, the RBI on May 5, announced a slew of measures to mitigate impact of the pandemic on the businesses and individuals, including restructuring window for small businesses.


As per the announcement, borrowers including individuals, small businesses and MSMEs having aggregate exposure of up to Rs 25 crore would be eligible for consideration under the resolution framework 2.0 provided they have not availed of restructuring under any of the earlier restructuring frameworks. Also, these accounts need to be standard as on March 31, 2021, the RBI said.


Lenders can review the working capital limits of small businesses and MSMEs as a one-time measure. Those who availed earlier window of restructuring can be given additional two years of moratorium, the RBI Governor, Shaktikanta Das said announcing the measures.In the past few days, the governor has held a series of meetings with representatives from banks, non-banking finance companies (NBFCs), small finance banks (SFBs) and microfinance institutions (MFIs) on the emerging coronavirus crisis. During the meetings, industry officials had sought another round of loan restructuring and other measures from the central bank.


Covid second wave impact businesses


Though localised at the moment, disruptions caused by the second wave of the pandemic have the potential to hit smaller businesses, which were yet to fully recover from the blow dealt by the first wave, Crisil said.
“The restructuring would entail rescheduling of their financial obligations, thereby easing liquidity pressure,” Crisil said.
CRISIL rates about 6,800 mid-sized companies (excluding financial sector entities). Of these around 3,500 are small and medium enterprises (SMEs), having bank loan exposure of up to Rs25 crore. About 3,400 of them are standard accounts, which makes them eligible to avail of the restructuring.
“The RBI’s intervention is timely and companies with weaker credit profiles will benefit more from the restructuring scheme. Four out of five companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks. Restructuring 2.0 could provide interim liquidity relief to these companies to cope with near-term cash-flow mismatches,” said Subodh Rai, Chief Ratings Officer, Crisil rating.
According to Crisil, last fiscal, a third of the aforesaid SMEs had cushioned their liquidity by availing of the RBI moratorium on bank loans. This relief was complemented by a bounce back in demand, which limited the number of companies that had opted for restructuring under the Resolution Framework 1.0.
“With the resurgence of the pandemic and absence of any moratorium window this time round, their resilience will be tested. However, Crisil ratings believes that the impact of pandemic could be contained over the next 2-3 months,” Crisil said, adding, therefore, actual number of companies opting for restructuring could be much lower than that are eligible.
CRISIL Ratings also analysed the impact of the proposed restructuring on a sectoral basis, categorising 43 sectors (excluding the financial sector) into three categories – high, moderate and low resilience.
“Companies in low-resilience sectors such as retail, hospitality, auto dealerships, travel and tourism, and residential real estate are likely to be impacted the most by resurgence of the pandemic, and therefore more likely to opt for the restructuring,” said Rahul Guha, Director, Crisil ratings.
“On the other hand, companies in high-resilience sectors such as chemicals, pharmaceuticals, dairy, information- technology and consumer staples/FMCG may not face any significant liquidity pressures on account of steady consumer demand and will be least likely to go for restructuring,” Guha said.
Crisil said it will assess the impact of restructuring 2.0 on its rated credits on a case-to-case basis after factoring in the timeliness and terms of the restructuring of debt, as sanctioned by the respective lenders and regulatory guidelines.“If the impact of the second wave of the pandemic is not contained over the next 2-3 months, more restructuring may be necessitated. This will bear watching,” the rating agency said.

Moneycontrol News
first published: May 6, 2021 04:18 pm

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