Rating agency Crisil said its preliminary analysis shows that 99% of the non micro and small enterprises (MSME) companies rated by it that qualify for the restructuring are unlikely to opt for the one-time-debt-restructuring (OTDR).
Crisil analysed 3,523 non-MSME companies under its rating watch which qualify for restructuring in case they opt for it. The rating agency rates about 10,000 companies including MSMEs.
“Improving business sentiment on account of increased economic activity over the past couple of months, and expectation of a sharp recovery next fiscal are persuading borrowers to skip OTDR. Another deterrent is the impact on the borrower’s long-term credit history – accounts of those opting for OTDR would be classified as restructured advances by lenders, which could impact their ability to raise debt in future,” said Subodh Rai, senior director, Crisil Ratings.
On August 6, the RBI had announced a restructuring scheme as a relief measure for non-MSME corporate borrowers having an aggregate exposure of greater than Rs 25 crore and were under stress due to the Covid-19 pandemic.
Crisil said of its sample companies, only around 1% indicated that they would apply for OTDR, despite two-thirds of the rated entities being eligible based on the parameters proposed by the K V Kamath committee set up by the RBI.
Importantly, about three fourths of the debt for about 44% of Crisil-rated companies comprises of short term working capital facilities which means availing restructuring would have negligible benefits for these companies as the resolution plans under this scheme are focussed on deferring principal repayment of long-term debt.
“Such borrowers, instead of opting for debt recast, may prefer to seek additional working capital financing as announced by the RBI under its Covid-19 regulatory package,” Crisil said.
The number of companies which had opted for a moratorium early into the lockdown have also avoided taking the restructuring. Crisil said that 968 companies or 27% of the sample set, had opted for the moratorium allowed by the RBI. As much as 98% of these are not opting for restructuring.
“The recently announced Emergency Credit Line Guarantee Scheme (ECLGS) for the health care sector and 26 other stressed sectors, which allows companies to borrow up to 20% of their outstanding dues, will further dissuade borrowers — especially those facing temporary liquidity issues — from opting for debt recast. However, companies that belong to highly impacted sectors such as hotels, retail, real estate, and textiles would still prefer OTDR given their longer business-recovery timelines,” said Sameer Charania, director, Crisil Ratings.
However, the rating agency said its prediction could change if sentiment around recovery dampens or Covid-19 infections keep increasing, leading to fresh curbs on economic activity.
“These are early days and greater clarity will emerge as we move closer to the regulatory deadline of December 31, 2020, set by the RBI for invoking debt restructuring plans,” Crisil said.