As the Restructuring 2.0 window closes, less than 1% of companies opt for this solution: CRISIL



oi-Sunil Fernandes


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 expected1. Less than 1% of eligible companies in CRISIL Ratings’ portfolio have chosen to restructure their debt via the facility.

The lukewarm response – despite an intense and more virulent second wave of the Covid-19 pandemic – reflects the positive evolution 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 follows resilience in 43 sectors which represent 76% of total corporate debt rated by CRISIL.

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 essentials such as consumer goods. , pharma and telecommunications, and infrastructure-related sectors such as cement, electricity, roads and construction. Such a widespread recovery helped reduce the need for restructuring among the portfolio companies rated by CRISIL.

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. In effect, lenders would classify their accounts as “restructured”, which would hamper 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 (“BB” or lower) category – where weaker credit profiles abound – a significant 98% did not seek to restructure.

Article first published: Saturday, October 30, 2021, 9:03 am [IST]


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