Companies performing well are exiting debt restructuring

MUMBAI: The stress on corporate balance sheets is easing, and many companies that were on the crutches of corporate debt restructuring are beginning to stand on their own with rising profitability amid improving business sentiment. The number of companies that have left the so-called corporate debt restructuring (CDR), a facility to provide heavily indebted companies easier terms of repayment and longer tenors, has risen to 75 in the September quarter from 67 a year ago.

The amount of loans that exited the CDR programme jumped 14% to Rs 58,205 crore from Rs 51,104 crore a year earlier, data from the CDR cell shows. "Companies performing well with an earnings before interest, depreciation, taxes and amortisation of 20% for two years are being pushed to pay recompense and exit corporate debt restructuring," a banker involved in the exercise said not wanti ing to be identified. "Some of the companies had completed 10 years. It took us time to arrive at a consensus on the recompense amount to be paid by companies." Lenders are turning aggressive in extracting their pound of flesh from borrowers who have benefited from the largesse offered while restructuring loan terms. With improving finances, banks are demanding that they be compensated for the sacrifice they made when they agreed to reduce the rate of interest and extend the tenors of loans.

Now, it is payback time for companies. Profitable companies like Nitin Spinners, Indian Acrylics, Gujarat Road and Infrastructure are among companies that have exited the corporate debt recast cell, said the person.

India Cements had exited the CDR cell in March by paying a recompense of Rs 57.13 crore. Recently, the rules for availing corporate debt restructuring were tightened after many companies were found to have abused the facility to cheat banks.

"To ensure promoters are accountable, banks under the CDR forum have made the admission criteria also tough," said a banker involved in the process.

"We are not allowing funding of interest on working capital loans. Banks are also insisting on promoters producing proof to prove they would be able to provide their contribution," he said.

Bankers are now insisting that companies get a certificate from a registered chartered accountant that the promoter has the funds to meet his side of the equity contribution. Now, every debt recast package insists that companies sell non-core assets to reduce debt. In the first two quarter of 2014-15, banks have restructured debt worth Rs 37,000 crore. Debt of companies like Tecpro Systems, Shriram EPC, Aster, and Surana Corporation were restructured in 2014-15.