With the restructuring window under the Reserve Bank of India’s resolution 2.0 framework closing on September 30, its use has been minimal as expected.
Less than 1% of eligible companies chose to restructure their debt through the facility.
The lukewarm response “despite an intense and more virulent second wave of the COVID19 pandemic” reflects the positive development of the demand outlook and the anxiety over the negative perception of stakeholders of restructured companies.
To assess the extent of the recovery in demand and the resilience of sectors, CRISIL Ratings uses an ownership framework. This tracks resilience in 43 sectors that account for 76% of total corporate debt rated by the agency.
The exercise indicated that 37 sectors saw demand rebound to or near pre-pandemic levels. The impact of Wave 2 on business cash flow was relatively short-lived due to localized and less stringent restrictions compared to Wave 1.
According to Subodh Rai, Director of Ratings, CRISIL Ratings, “Approximately 88% of the debt rated under the framework is in areas where demand has recovered or is expected to recover fully in the current fiscal year to date. ‘to pre-pandemic levels. This includes essential elements such as FMCG, pharma and telecommunications, and sectors related to infrastructure such as cement, electricity, roads and construction. Such a widespread recovery has helped reduce the need for corporate restructuring … “
In addition, continued strong government support “such as expanding the scope of the Emergency Credit Line Guarantee Scheme (ECLGS) and extending it until March 31, 2022” has helped businesses manage temporary liquidity disruptions.
This is especially true for micro and small businesses, which experience relatively higher stress. ECLGS reduces the need for them to opt for Restructuring 2.0.
The impact on long term credit history has also kept many businesses away. This is because lenders would classify their accounts as restructured, which would affect their ability to take on debt in the future.
None of the CRISIL-rated companies that opted for Restructuring 2.0 had an investment grade rating (BBB or higher), where credit profiles are relatively stronger. Even among companies in the sub-investment grade (BBB or lower) “category with the weakest credit profiles”, 98 percent have not sought to restructure.
It is relevant to note that these findings are limited to companies rated CRISIL, which are largely medium to large in size. Therefore, they may not reflect the plight of micro and small businesses, very few of which are rated anyway.
In the future, a third wave of the pandemic, if it lands, and its impact will be one to watch.
(With IANS entries)
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Posted on: Sunday October 31, 2021 19:34 IST