Banks see mergers as way to restructure debt

Investment bankers could soon lose their peace of mind. The banking industry-promoted Corporate Debt Restructuring (CDR) Cell is considering getting into their turf, albeit in a limited sense.

The CDR Cell wants to catalyse the merger of assets (i.e. companies) that have been with the cell for debt restructuring for long, with companies having good performance track record in the same line of business. Such mergers will be subject to the agreement of the promoter of the company that is under the wings of the CDR Cell and the lenders.

The reality that the value of assets that have turned non-performing diminishes over a period of time has prompted the CDR Cell to look at the mergers and acquisitions option in addition to the traditional mechanism for debt restructuring.

Traditionally, creditors, among others, make concessions and waivers by reducing the interest rate, rescheduling repayments, converting debt into equity or preference shares and waiving principal or interest (to a limited extent) under CDR.

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.

“The CDR Cell is a forum where corporate debt restructuring decisions are driven by the collective wisdom of all participating bankers. NPAs are a drag on the economy in general and the banking system in particular.

Turning them into performing assets is our mandate.

Hence, we are exploring various options, including catalysing mergers and acquisitions, to efficiently resolve NPAs in the banking system,” said Mr B. Ravindranath, Executive Director, IDBI Bank Ltd.

The CDR Cell has made a small beginning in initiating mergers and acquisitions. Last year, the Cell, for the first time, successfully merged a mid-sized sugar unit under its fold with a large-sized sugar manufacturer. Companies, both domestic and global, looking to expand capacity as well as entering new markets could tap the Cell for possible acquisitions.

Since its inception in 2001, the cell has approved 215 corporate debt restructuring cases aggregating Rs 1,04,299 crore. Companies in the iron and steel, textiles, and sugar sectors account for a chunk of the CDR cases by the size of debt.

Investment bankers are a harried lot in India as most of the big-ticket merger and acquisition deals in the pharmaceutical and auto space in the last few months have been concluded by the company promoters themselves.

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