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Economy

Aggregate Debt Under CDR Mechanisms at An All-Time High; 19 Fresh Cases During Q2 2015

Earlier in 2014, we at Capital Mind had analysed the statistics behind Corporate Debt Restructuring programs in India (Macronomics: Corporate Debt Restructured Forms 5% of All Bank Loans, Highest Ever).

Since then, the CDR Cell has released another set of statistics; this time updated till the end of September 2014.

As of the end of September 2014, there were 638 cases referred to the CDR cell, out of which 505 cases were finally approved by them and taken to the next stage.

Cases Approved

Of these 505 packages, 144 (28.5%) failed. This could be because:

  • Promoters were unable to raise enough equity;
  • Economic conditions pertinent to their industry deteriorated or did not meet expectations;
  • Gradual reduction in interest rates are not taking place according to plan;
  • Banks were not too careful when they had to decide on the restructuring; they were either too hasty or too lax or overly optimistic;

Looking at the same statistic but in terms of Aggregate Debt:

Cases Approved_02

Note:

  • Even though 28.5% of the total packages failed, they amounted to only 12.80% (Rs. 47,042 cr.) of the Aggregate Debt.
  • Successful packages that were exited amounted to 15.83% of the total aggregate debt (14.85% of no: of cases).
  • Live cases, instances where the CDR mechanism is underway, amounted to 71.37% of aggregate debt (56.63% of the total no:).

That means, a combined 87.20% of cases till date are either closed, or being currently implemented. Out of the failed packages this year, there are 4 that stand out with their numbers.

  1. Bharati Shipyard, obligations to the tune of Rs. 5,800 cr.
  2. Hotel Leelaventure with loans of Rs. 4,300 cr.
  3. Electrotherm with Rs. 3,000 cr. and
  4. SBQ Steel which owed Rs. 1,000 cr.

These 4 combined for 36.45% of all failed packages (aggregate debt). They all exited the CDR Cell and were sold to Asset Reconstruction Companies (ARCs) as they could not comply by the requirements of the CDR agreements.

The total debt for all the 505 cases stood at Rs. 3.68 lakh cr, up 5.48% from the end of the previous quarter. For the June quarter, total no: of approved cases was 486 amounting to an aggregate debt of Rs. 3.48 lakh cr. This means that during the September quarter itself, 19 fresh CDR cases were approved with a total debt of Rs. 19,105 cr.

Cases Approved_Quarterly

This is what the numbers tell us on a quarterly basis over the last 3 years. The aggregate debt that falls under these cases, is steadily increasing.

Charting the rate of expansion of aggregate debt under restructuring:

Aggregate Debt

Despite Aggregate Debt under CDR definitely increasing, the rate at which this debt is increasing varies from quarter to quarter. The highest growth in aggregate debt under CDR was recorded in Q3 2012, at 17.64%. For Q1 2015 it was at 5.46%, while Q2 showed a similar growth rate at 5.48%.

Looking at quarterly change in Average Debt per Case as compared to the change in Aggregate Debt:

Quarterly Changes

For the quarter ending September 2014, Total Aggregate Debt grew by 5.48% while Average Debt per Case grew by a tamer 1.51%.

Live CDR Cases:

September 2014

September 2014

If we classify live CDR cases based on their industry, we can see at the end of September 2014 that:

  • Infra companies account for 20.19% of all the debt under CDR mechanisms. This %age is down from last quarter (23.01%).
  • Together, the top 5 account for 63.64% of the Aggregate Debt.

June 2014

June 2014

  • Infrastructure companies accounted for the lion’s share in Aggregate Debt with 23.01%.
  • Followed by Iron & Steel, Textiles, Power and Ship-breaking/building companies.
  • Together, the top 5 accounted for 62.69% of Aggregate Debt.

In the previous quarter the same 5 industries topped the list.

March 2014

March 2014

  • The Aggregate Debt for Infrastructure, Textiles and Power companies had increased.
  • However, for Iron & Steel companies, aggregate debt reduced by 6.33% to Rs. 40,783 cr. at the end of June 2014.

Our View:

Despite varying growth rates in Aggregate Debts q-on-q, it is a worry that the absolute numbers are still going up; this despite a slew of new policies by the RBI regarding asset quality. The RBI has focused extensively on NPA ratios as well as the effectiveness of the CDR mechanism.

There are a few reasons behind the ever-increasing numbers. It can be attributed in part, to economic conditions which have not been as conducive as expected, to operations. Add to this, the inability of companies to meet certain requirements (e.g. raising additional equity) which leads to the banks with-holding funds from these companies.

We will wait for the same set of data to be released for Q3 2015 after which we will be able to analyse and see how the whole of 2014 has fared in this aspect.