Nearly 66% Of Rated Companies Qualify For Debt Restructuring, Says Crisil

Ratings agency Crisil Ltd. has said nearly two-thirds of the companies that it rates will eligible for a debt restructuring, considering the financial benchmarks set by the RBI-appointed Kamath Committee.

For its analysis, the ratings agency studied the rated portfolio of 8,500 companies after sorting them by ratings, sector and moratorium availed. The ratings, Crisil said, excludes financial sector firms and small and medium-sized businesses.

“Three out of four investment-grade companies (rated Crisil BBB- or higher) and one out of two in the BB rating category qualify for restructuring of bank loans,” Crisil’s Senior Director Subodh Rai said. “However, in the Crisil B category, only one in three qualify because companies here tend to have relatively weak debt protection metrics.”

A five-member committee, headed by veteran banker KV Kamath and constituted by the Reserve Bank of India, has released a report that sets financial benchmarks for restructuring companies. According to the panel’s recommendations for 26 sectors, bankers have been asked to mandatorily look at five financial benchmarks, which the restructuring proposal for a company must meet before the plan is approved. The committee has also suggested thresholds for each of these benchmarks, depending on the sector.

Restructuring will also be available to a large number of companies that opt for the moratorium. Every second company in the Crisil-rated portfolio that did so will qualify for restructuring, the rating agency said. On Aug. 31, Crisil had said that nearly 75% of companies which have opted for a moratorium from banks had a sub-investment grade rating.

According to Crisil’s study of its rating portfolio, companies belonging to “resilient” sectors—such as construction, iron and steel, manufacturing, pharmaceuticals, chemicals, corporate retail and consumer durables, have a higher ratio of companies qualifying for restructuring, as per the norms.

Also Read: Is The Kamath-Proposed Restructuring Framework Effective?

Among the weaker sectors are residential real estate, power generation, gems and jewellery, auto dealership, sugar and the hospitality and tourism sectors.

Also Read: What Analysts Made Of Kamath Committee Report

Rahul Guha, director at Crisil, said that the number of companies being eligible for restructuring could increase as the situation on the ground evolves. This could involve faster-than-expected turnaround in the economy, banks choosing to convert interest charges to interest term loan or explore other innovative ways of restructuring or promoters bringing in capital.

A clearer picture, Guha said, will come only in the next three to four months.