Few Mid-Sized Emerging Firms Go For One-Time RBI Restructuring: Report
Very few companies in the mid-tier and emerging segments have opted for the Single Debt Restructuring of the Reserve Bank of India (RBI) after the respite from various government programs such as the Emergency Lines of Credit Guarantee Program (ECLGS ) and faster recovery in demand, according to a report.
In August last year, the RBI announced a one-time restructuring for personal and business borrowers affected by stress from the pandemic.
India Ratings and Research said only 5% of its 450 rated issuers in the Medium and Emerging Business (MEC) space had taken advantage of the RBI’s financial restructuring facility available until December 31, 2020.
“The smaller-than-expected restructuring was due to various government measures and a faster recovery in domestic demand, supported by a marginal recovery in exports in some sectors,” the agency said in a report.
Issuers that have benefited from restructuring are primarily rated in the “IND BB” rating categories and below with stretched liquidity. These issuers belong to the industrial and discretionary segments and operate primarily in sectors such as real estate, construction and engineering, he said.
Report says Rs 3-lakh ECLGS crore and COVID-19 loans provided by banks provide respite for low-liquidity issuers and increase their ability to withstand sustained cash pressures caused by COVID-19 led lockdown .
Although not all issuers benefited from the additional financing, so did entities down the value chain. Many banks have also automatically converted interest owed on moratorium working capital loans into term loans, eliminating the need for issuers to apply for the restructuring plan, according to the report.
Even the revised definition of micro, small and medium enterprises (MSMEs) has improved the access of newly included entities to finance the financial system, he noted.
According to the agency, the sentiments of the issuers played a role in their failure to profit from the restructuring plan.
“The tightening of liquidity suffered by issuers in the first half of FY21, supported by the start of a recovery in the third quarter of FY21, suggested their increased resilience vis-à-vis of their liabilities, “he said.
The opening of offices, factories, retail stores and malls supported by the demand of the holiday and wedding season has led issuers to see a steady upturn in their credit profiles from October to December. 2020, according to the report.
He said bankers have remained extremely reluctant to risk extending additional loans or changing loan terms for issuers with low liquidity, high leverage, or whose credit profile is unlikely to fail. improve in the short or medium term.
The report says the back-up package offered by the banks and festive demand coupled with positive sentiment will partially ease the headwinds in short-term liquidity for lower-rated mid-sized and emerging companies.
However, he expects funding constraints to increase for issuers with tight liquidity and a weak credit profile over 2021-2022 and 2022-2023, reducing financial flexibility for those who have not taken advantage of the restructuring. of their loans.
Of its MEC-rated portfolio, 56 percent of issuers primarily in the “IND BB” categories and below have a tight liquidity profile. Of those, 74% are in the discretionary and industrial segments, the agency said.
The agency said it will continue to monitor the credit and liquidity profile of issuers in the MEC space and may take negative rating actions for issuers with low liquidity or a deteriorated long-term credit profile or a combination of both.
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Posted on: Thursday February 04, 2021 08:06 IST