Rising input prices, higher interest rates and limited ability to pass on higher costs to end-users appear to be pushing mid-size Indian companies into corporate debt restructuring.

The number of companies that came up for debt restructuring in the April-June quarter of 2011-12, at 16, was double the number in the corresponding year-ago period. The total exposure of banks to the 16 companies, mainly from the textiles, steel and allied sectors, aggregated around Rs 5,700 crore.

Joint mechanism

In the first quarter of 2010-11, eight companies with aggregate loans of about Rs 2,600 crore were referred to the CDR Cell.

The CDR Cell is a joint mechanism evolved by banks and financial institutions in 2001 to restructure debts of viable corporate entities affected by internal and external factors.

Under CDR, creditors make concessions by reducing the interest rate, rescheduling repayment, converting debt into equity or preference shares, and the like.

Textile companies have been affected by higher input costs (of yarn) and underutilisation of the capacities that were created under the Textile Upgradation Fund. In the case of some textile units in Tamil Nadu, reliance on diesel generator sets due to power outages drove up operating costs.

The list

The textile companies that were admitted to the CDR Cell are: Eastern Silk Industries (total exposure of banks: Rs 448 crore); Malwa Industries (Rs 274 crore); Sabare International (Rs 105 crore); and SPL Industries (Rs 85 crore).

Companies from the steel and allied industries: Ruchi Power & Steel Industries (Rs 601 crore); Maithan Ispat Ltd (Rs 436 crore); Rim Jhim Stainless Steel (Rs 202 crore); and Mackeil Ispat & Forgings (Rs 123 crore) were affected as prices of coal and iron ore went up.

Two companies from the pharmaceutical and healthcare sectors — Maneesh Pharmaceutical (Rs 1179 crore) and Crosslay Remedies (Rs 101 crore) — were also referred to the CDR Cell.

The other big cases that were referred to the CDR Cell are: New Tirupur Area Development Corporation (Rs 779 crore); Euro Ceramics (Rs 452 crore); Solar Semiconductor (Rs 388 crore); KLG Systel (Rs 332 crore); and Bengal Waterproof Ltd (Rs 29 crore).

The economic downturn, system driven income recognition and asset classification norms, delays in land acquisition and environmental clearances are some of the reasons why companies are getting referred to the CDR Cell, said Mr B. K. Piparaiya, General Manager, Bank of Maharashtra.

Published on July 5, 2011