Two-thirds of Crisil-rated companies eligible for one-time loan recast


MUMBAI: Domestic rating agency Crisil on Thursday said close to
two
thirds
of its rated entities would be
eligible
for
one
time
loan restructuring based on the proposed norms by K V Kamath Committee.

Earlier this week, the Reserve Bank
of India broadly accepted Kamath Committee recommendations.

The panel specified five financial ratios and sector-specific thresholds
for resolution
of COVID-19-related stressed assets in 26 sectors, including auto components, aviation and tourism.

Crisil studied its rated portfolio
of more than 8,500
companies after sorting them by rating, sector and moratorium availed.

The broad-level assessment is based on financial projections and excludes small and medium enterprises (SMEs) and financial sector
companies, the rating agency said in a note.

“Nearly
two
thirds
of the
companies rated by CRISIL would be
eligible
for
one
time debt restructuring based on the parameters proposed by the K V Kamath Committee set up by RBI,” it said.

The rating agency’s senior director Subodh Rai said 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 loans.

However, in the Crisil B category, only one in three qualify because
companies here tend to have relatively weak debt protection metrics.

“At an aggregate Crisil portfolio level, two out
of three
companies were found
eligible
for restructuring,” Rai said.

The committee submitted its recommendations
for 26 sectors.
For others, it said lenders should make their own internal assessments, but mandated that the current ratio and debt service coverage ratio (DSCR) should be above 1 time and average DSCR above 1.2 times.

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While this will help identify
eligible
companies, the decision to restructure will be a function
of company performance, the agency said.

It said while the parameters support debt restructuring across rating categories, the study indicated that
companies in the resilient sectors stand to benefit more.

Three out
of four rated
companies in the resilient sectors such as construction, chemicals, pharmaceuticals, iron and steel manufacturing, corporate retail, and consumer durables/FMCG will qualify
for restructuring, the agency said.

In the less-resilient sectors such as auto dealerships, gems and jewellery, hotels, restaurants and tourism, power generation, and real estate, opportunities
for debt restructuring could be a little lower as they can take longer to recover to pre-pandemic business levels, it noted.

Restructuring will also be available to a large number
of
companies that opted
for the moratorium, it said, adding “every second company in the
Crisil
rated portfolio that did so will qualify
for restructuring”.

According to the rating agency’s director Rahul Guha, the situation is still evolving and actual number
of
eligible
companies could increase in case
of favourable developments such as faster than expected turnaround
of the economy, banks choosing to convert interest charges to funded interest term
loan or exploring other innovative ways
of restructuring or promoters bringing in capital.

“A final picture on how many
companies have qualified
for restructuring will only emerge over the next 3-4 months,” Guha said.

The agency said it will factor in the impact
of debt restructuring on its rated credits as and when the process is initiated and will take a view on a case-to-case basis.

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