Half of Crisil-rated mid-sized cos eligible for restructuring 2.0

Crisil 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.

Half of Crisil-rated mid-sized companies will be eligible for the restructuring window offered under the resolution framework 2.0 announced by the Reserve Bank of India (RBI). Companies with relatively weaker credit profiles, and part of low-resilience sectors are expected to benefit more from the scheme, the rating agency said on Thursday.

“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. The restructuring would entail rescheduling of their financial obligations, thereby easing liquidity pressure,” Crisil Ratings said in a release.

The agency rates about 6,800 mid-sized companies, excluding financial sector entities. Of these, 3,500 are small and medium enterprises (SMEs) having bank loan exposure of up to Rs 25 crore. About 3,400 of them are standard accounts, which makes them eligible to avail of the restructuring.
Subodh Rai, chief ratings officer, Crisil, said that 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,” he added.

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 around, their resilience will be tested. “However, CRISIL Ratings believes that the impact of pandemic could be contained over the next 2-3 months. Therefore, the actual number of companies opting for restructuring could be much lower than that are eligible,” the statement said.

Crisil 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 the resurgence of the pandemic, and therefore more likely to opt for the restructuring.

The rating agency 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 two-three months, more restructuring may be necessitated. This will bear watching,” it said.