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Crisil says half of its rated cos eligible for restructuring 2.0, but few likely to opt for it

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The report noted, the actual number of companies that may end up seeking restructuring now may be lower than the 3,400 eligible.

Ratings and research firm Crisil said half of the mid-sized companies it rates will be eligible to seek restructuring under Reserve Bank of India's (RBI) recently announced Resolution Framework 2.0.
Amid the rising COVID infections in the country, RBI on Wednesday announced a slew of relief measures, including re-opening the restructuring window for eligible borrowers. It said that small borrowers, MSMEs with total loans not exceeding Rs 25 crore- who had not availed restructuring under earlier frameworks and were classified as standard as of March 31, 2021 – will now be eligible to seek debt recast under Resolution Framework 2.0.
"Though localised at the moment, disruptions caused by the second wave of the pandemic have the potential to hit smaller businesses, which were yet to fully recover from the blow dealt by the first wave. The restructuring would entail rescheduling of their financial obligations, thereby easing liquidity pressure," Crisil noted.
Of the 6,800 mid-sized companies (with aggregate bank loan exposure of less than Rs 500 crore) Crisil rates, it found that about 3,500 were SMEs with aggregate bank loans of Rs 25 crore, and about 3,400 of these were standard accounts, and therefore eligible for Resolution Framework 2.0.
"Four out of five companies eligible for restructuring have sub-investment category ratings, indicating their relatively weak ability to manage liquidity shocks. Restructuring 2.0 could provide interim liquidity relief to these companies to cope with near-term cash-flow mismatches," said Subodh Rai, chief ratings officer, CRISIL Ratings Ltd.
However, the report noted, the actual number of companies that may end up seeking restructuring now may be lower than the 3,400 eligible. While the resurgence of the pandemic and absence of any moratorium window this time round will test the resilience of SMEs, Crisil assumes that the impact of the pandemic could be contained over the next 2-3 months.
Therefore, the actual number of companies opting for restructuring could be much lower than those are eligible.
It also analysed the impact of the proposed restructuring on a sectoral basis, categorising 43 sectors (excluding the financial sector) into three categories – high, moderate, and low resilience.
Rahul Guha, director, CRISIL Ratings noted, "Companies in low-resilience sectors such as retail, hospitality, auto dealerships, travel and tourism, and residential real estate are likely to be impacted the most by the resurgence of the pandemic, and therefore more likely to opt for the restructuring. On the other hand, companies in high-resilience sectors such as chemicals, pharmaceuticals, dairy, information- technology and consumer staples/FMCG may not face any significant liquidity pressures on account of steady consumer demand and will be least likely to go for restructuring."
It did warn, however, that if the impact of this second wave is not contained within 2-3 months from now, more restructuring may be necessitated. ​

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