Rating agency Crisil on Tuesday said that as many as 99% of companies rated by it were unlikely to opt for the one-time debt restructuring scheme. The finding is based on a preliminary analysis of 3,523 non-micro small and medium enterprise (MSME) companies.
This is despite two-thirds of the rated entities being eligible for restructuring, based on the parameters proposed by the KV Kamath committee, said Crisil. The Reserve Bank of India (RBI) had allowed one-time restructuring for personal and corporate loans impacted by Covid-19.
Subodh Rai, senior director, Crisil Ratings, said that improving business sentiment on account of increased economic activity over the past couple of months, and expectation of a sharp recovery next fiscal are persuading borrowers to skip one-time debt restructuring.
“Another deterrent is the impact on the borrower’s long-term credit history — accounts of those opting for debt restructuring would be classified as restructured advances by lenders, which could impact their ability to raise debt in future, ” he added.
The rating agency said for around 44% of Crisil-rated corporates, more than three-fourths of their debt comprises short-term working capital facilities. So availing of restructuring would have negligible benefits, as the resolution plans under the scheme focusses on deferring principal repayment of long-term debt. Such borrowers, instead of opting for debt recast, may prefer to seek additional working capital financing as announced by the RBI under its Covid-19 regulatory package, it said.
Sameer Charania, director, Crisil Ratings, said, “The recently announced emergency credit line guarantee scheme (ECLGS) for the healthcare sector and 26 other stressed sectors, which allows companies to borrow up to 20% of their outstanding dues, will further dissuade borrowers — especially those facing temporary liquidity issues, from opting for debt recast.” However, companies that belong to highly impacted sectors such as hotels, retail, real estate, and textiles would still prefer debt recast given their longer business-recovery timelines, he added.
Many lenders including State Bank of India (SBI) had guided for a lower restructuring estimate till December, 2020 during the September quarter earnings. A research report of SBI also said that banks may be dissuading corporate borrowers from restructuring their loans.
The rating agency also said that number of companies seeking debt restructuring may increase if sentiment around recovery dampens or Covid-19 afflictions keep increasing, leading to fresh curbs on economic activity.