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Construction : Exclusive Report | July 2012 | Source : Construction Update

Iron and Steel sector dominates CDR cases

Instances of corporate debt restructuring (CDR) has been rising with each passing month and companies mostly from iron and steel, infrastructure,  power, cement, engineering sectors are adopting this route.

Firms that are under financial difficulty but are solvent in the long run adopt CDR route in order to secure concessional terms from their lenders for repayment of their debt. A company’s CDR proposal would be cleared if 75 percent of secured creditors by value agree to it.

During Apr-June 2012, the amount of debt referred to CDR cell rose 30 percent to Rs 19,000 crore compared to the previous quarter.

It is learnt that iron and steel, and textiles sectors have contributed the most to the number of cases referred to the CDR cell. Of the 37 cases, seven cases were contributed by each of these sectors.

During 2011-12, the amount of debt referred to CDR rose nearly three-fold to Rs 68,000 crore from Rs 23,000 crore in 2010-11. The number of cases also grew sharply by 78 per cent to 87 cases from the previous financial year.

At 26 per cent, iron and steel sector accounted for the largest share of total restructured debt during 2011-12. This was followed by infrastructure (11 percent), textiles (8 percent), telecom (6 percent) and fertilisers (5.6 percent).

The amount of CDR has been rising in the last one and a half years because companies raised significantly large amount of debt during the period 2004-2008 for expansion and acquisition of other companies.

However, while acquiring other firms, companies did not factor in the possible downside risks from such activity. For example, the Sajjan Jindal Group acquired majority stake in the loss making JSW Ispat in December 2010 hoping that the company would turn around in the course of time. However, the company is yet to emerge from losses and Jindal expects it to make losses till the end of calendar 2013.

Another case in point is Bharati Shipyard which acquired its major customer Great Offshore, an oilfield service provider in December 2009. The company had to restructure its debt that it incurred for this acquisition and also for its expansion activity in 2008.

While CDR process eases the debt repayment pressure on companies, it also benefits banks by not having to treat stressed assets as non performing loans. There are some companies like India Cements, Wockhardt that successfully used CDR route to come out of their debt trap.

India Cement, which had a debt of Rs 1,800 crore, had its CDR proposal cleared in March 2003. However, by 2006, the company regained its financial health on the back of strong growth in cement industry. It remains to be seen how long it takes for the companies who have adopted CDR route in the recent past to emerge out of financial duress.

CORPORATE DEBT RESTRUCTURING (CDR) CELL

PROGRESS REPORT
(As on March 31, 2012)


(i) Overall Status
 (Rs. crore)

 

 

Total References Received

 

 


Cases Rejected/Closed

 

 

 

Cases under finalization of Restructuring packages

Total Cases Approved (including cases withdrawn/ Exited

No. of cases

Aggregate Debt

No. of cases

Aggregate Debt

No. of cases

Aggregate Debt

No. of cases

Aggregate Debt

392

206493

59

20817

41

35161

292

150515


(ii) Industry-wise Classification of Approved Cases

Sr. No.

Industry

No.

Aggregate Debt

(Rs. crore)

Debt in %

1

Iron & Steel

31

39252

26.08

2

Infrastructure

13

16774

11.14

3

Textiles

59

11661

7.75

4

Telecom

9

9199

6.11

5

Fertilizers

8

8455

5.62

5

NBFC

6

6592

4.38

6

Sugar

26

6733

4.47

7

Cements

11

6595

4.38

8

Petrochemicals

3

5493

3.65

9

Refineries

1

4874

3.24

10

Power

9

4838

3.21

11

Other (Jewellery, Liquor, edible oil etc.)

5

3498

2.32

12

Pharmaceuticals

9

3349

2.23

13

Chemicals

15

2898

1.93

14

Electronics

3

2521

1.67

15

Metals (Non-ferrous Metals)

5

2171

1.44

16

Paper/Packaging

17

2204

1.46

17

Cables

8

1201

0.80

18

Ship-Breaking/Ship Building

2

869

0.58

19

Engineering

10

1039

0.69

20

Ceramic Tiles

7

775

0.51

21

Computer (Hardware/soft)

3

1914

1.27

22

Auto Components

7

563

0.37

23

Automobiles

2

551

0.37

24

Food & Food Processing

3

525

0.35

25

Retail

1

470

0.31

26

Wood Products

1

463

0.31

27

Plastic

3

399

0.27

28

Hotels

3

373

0.25

29

Rubber

3

167

0.11

30

Forgings

1

112

0.07

31

Hospital & Healthcare

1

101

0.07

32

Glass

3

486

0.32

33

Battery

2

67

0.04

34

Electrical

2

3333

2.21

 

TOTAL

292

150515

100.00

 
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