The following table gives the summary of sector specific threshold parameters recommended by the Expert Committee on Resolution Framework for Covid-19 related Stress. The committee was appointed by Reserve Bank of India (RBI).

The report said that the sector specific parameters may be considered as guidance for preparation of resolution plan (RP) for a borrower in the specified sector. 

In respect of those sectors where the threshold parameters have not been specified by the Committee, lenders can make their own internal assessments for the solvency ratios that is, TOL/Adjusted TNW and Total Debt/EBIDTA. However, the current ratio and DSCR shall be 1.0 and above, and ADSCR shall be 1.2 and above. 

The Committee has uniformly proposed thresholds for current ratio, DSCR and ADSCR as in the table below in most of the sectors (exceptions flagged in the table). Here are those sectors:

Automobile Manufacturing : The report said it is not prescribing any threshold for Current Ratio due to the “just in time inventory” business model for raw materials and parts, and finished goods inventory is funded by channel financing available from the dealers. 

Aviation : It said the targeted Current Ratio for airline industry is kept at 0.40 and above. Some of the reasons attributed by the report for this are:  

-- Cash and carry model for revenue purpose, thereby creating almost nil debtors and higher current liabilities in form of advance received from customers. These advances are approximately two months of yearly sales of the airline industries.

-- The airline enjoys credit of typically six-nine months from vendors (including fuel payment). 

It said DSCR is not ascertainable for airline industry since most of the airline companies work on refinancing of debt as a financing strategy. As a consequence, average DSCR is not ascertainable for airline industry.

Real Estate : Considering the typical nature of Real Estate projects, the parameters to be considered at project level rather than at entity level, it said. 

Roads : In the roads sector, the financing is cash flow based and at SPV level where the level of debt is decided at the time of initial project appraisal. It may also be noted that the working capital cycle in this sector is negative.  

Accordingly, ratios like TOL / ATNW, Debt / EBITDA and current ratio may not be relevant at the time of restructuring in this sector. Since cash flows of several projects are by way of annuity payments, the threshold ADSCR has been kept at 1.10. 

Trading - Wholesale: It said DSCR/ average DSCR is not ascertainable for trading business as most of the companies do not use long-term debt for funding their operations and are unlisted. 

comment COMMENT NOW