Has India Inc.’s debt burden eased?

Has India Inc.’s debt burden eased?

News:

1. Article discusses about India’s incorporations recent indebtedness trends and  measures undertaken to resolve the crises.

Important facts:

2. Though the overall economic trends are improving, the data from 1,197 NSE-listed companies describes the worsening  state of affairs of incorporations (Inc’s).

3. The companies are  busy dealing with debt problem, banks are busy in dealing with their Non- Performing Assets (NPAs).

4. Reasons for NPA problem and India’s Inc’s indebtedness :

⦁ The aggressive capex plans by companies, financed by the credit boom in mid-2000s.

⦁ Companies took huge loans post-2008 global financial crisis but failed to pay the interest payments on these loans.

⦁ This led to twin-deficit problem which led to prolonged economic slowdown.

5. The big picture on India Inc.’s indebtedness :

⦁ FY10 to FY14 witnessed a fast pace of debt accumulation

⦁ FY14 to FY16  saw slowdown in debt accretion.

⦁ FY16 to FY18  again witnessed debt accretion inching up.

⦁ The pace of debt accumulation was higher in core sectors such as infrastructure, power and telecom.

⦁ The indebted firms are on the rise and the companies  with negative net worth have increased.

⦁  From 29 in FY10, negative net worth companies increased to 95 by FY17.

⦁ The  debt levels for oil companies, telecom, power and construction companies have significantly increased in the past two years.

6. Steps taken to reduce the indebtedness problem:

• De-consolidation and disposal of company subsidiaries has led to the sharp decrease in debt.
• For example, KSK Energy Ventures, a company with high debt-to-equity and low interest cover, its debt reduced drastically by over ₹20,000 crore in FY18 mainly due to de- consolidation.
• RBI mandated banks to make resolution plans for insolvency within 180 days and refer the case to Insolvency and Bankruptcy code (IBC) if they fail to make the plan.
• Pariwartan scheme : Government decided to give stressed power projects to asset reconstruction company under Power Asset Revival through Warehousing and Rehabilitation (Pariwartan) scheme. This will  ensure that the value of the assets is protected and will prevent their distress sale under IBC.
• The steel sector has seen successful resolution under IBC, which has led to substantial de-leveraging for the sector.
• The  debt in infrastructure sector is restructured under the strategic debt restructuring (SDR) plan.

7. Issues in solving the indebtedness problems of Inc’s:

⦁ The structural issues plaguing various sectors like  non-availability of fuel, projects set up without linkage, lack of PPA, tariff-related disputes  can make it difficult to find buyers under IBC, leading to liquidation.

⦁ The operational creditors initiating insolvency process will find it difficult to find buyers under IBC.

⦁ All resolution plans which were under earlier schemes will require revision.