About 60% Of Mid-Sized Corporates Eligible For Restructuring: India Ratings
Companies in sectors such as sugar, real estate, auto dealership, building material may not easily qualify for restructuring.
A little over 60% of companies that fall in the category of ‘mid-sized and emerging corporates’ will be eligible for loan restructuring under the Reserve Bank of India’s guidelines, according to India Ratings and Research.
India Ratings analysed 301 mid-sized and emerging corporates, 4% of whom have a credit rating of ‘A’ and 96% have a credit rating of either ‘BBB’ or ‘BB’, it said in a report dated Oct. 8.
“On an overall basis, 62% of the issuers (47% by total debt) qualify for all the ratios recommended by KV Kamath committee financial guidelines for restructuring based on the FY19 balance sheet,” India Ratings said.
Who Will Be Eligible?
Of this set of companies, 71% of the investment grade firms (rated BBB and above) and 50% of the speculative grade companies (rated BB and below) are eligible for restructuring as per the KV Kamath committee recommendations on financial parameters, the report said.
While majority of sectors pass through the ratios recommended under Kamath committee, sectors such as sugar, real estate, auto dealership, building material have median ratios that are weaker than the recommended ratios, given their already pre-pandemic stretched balance sheet.India Ratings and Research
Who’s Likely To Restructure?
Around 43% of highly vulnerable mid-sized and emerging corporates are likely to seek restructuring, the rating agency said. These are entities whose annual revenues are below Rs 750 crore, operate in sectors linked to discretionary spending and who have limited liquidity buffers and significant leverage.
On the other hand, the rating agency expects restructurings in the large corporate portfolio, with annual revenues above Rs 750 crore, to be less than 5% of the total portfolio.
Companies belonging to the industrial sector and discretionary spending segments, are most likely to opt for restructuring, the agency said.
Entities within the trading sector, commercial real-estate, pharmaceuticals, logistics and others are most likely to be provided with a restructuring option by lenders.
Significant Haircuts For Lenders
Around 40% of the 113 issuers who do not qualify for restructuring under the present guidelines could turn delinquent over the next 6 to 12 months due to weak liquidity positions, which would lead to significant haircuts for lenders, the rating agency said.
India Ratings expects the credit and liquidity profile of issuers that do not qualify for restructuring to deteriorate over the next two to three years.
Over one-third of micro-small-medium enterprises do not qualify for restructuring as their financial ratios are below the committee’s recommendations.