Auto component, realty firms seek loan recast2 min read . Updated: 16 Sep 2020, 06:58 AM IST
- Cos approach advisory firms to project cash flows to meet parameters set by RBI
- About 5-8% of loans are expected to be restructured under RBI’s debt recast rules
Auto parts makers, manufacturing companies and real estate developers comprise the bulk of companies seeking covid-19-related loan restructuring, two officials assisting companies with bank loan recasts said. These firms have approached financial advisory firms and lawyers to project cash flows to meet financial parameters specified by the Reserve Bank of India (RBI) by March 2022, the two officials said.
“Auto components, manufacturing and real estate are some of the worst-affected sectors due to covid-19; banks are also keen on restructuring these companies; else, it would impact bank provisioning. The inter-creditor agreements (ICA) are being worked upon with lenders and corporates, we will see some announcements as early as next week," the first of the two people said.
About 5-8% of bank loans are expected to be restructured under RBI’s debt recast rules. The ICAs will build consensus among lenders and corporates on how to restructure loans and ensure financial viability.
The financial advisors and lawyers are helping stressed companies assess their financial position using techno-economic viability (TEV) studies, ratings and valuations. A TEV study typically has three subcategories—technical feasibility, market potential and financial viability.
On 7 September, RBI released the recommendations of an expert committee led by former ICICI Bank chief executive K.V. Kamath to recommend eligibility parameters for restructuring stressed loans.
The RBI has laid down strict criteria for companies seeking relaxations in repayment terms. The central bank also said the lenders would need to finalize resolution plans by 31 December, and implement it within 180 days.
While many real estate firms have approached financial advisors, lawyers and lenders for restructuring, only about half of them are likely to meet the RBI parameters, said the people cited above.
“Only about half of the real estate firms qualify for the RBI norms as many of the projects were already under stress before March. Only the firms that faced inventory pile-ups during covid-19 related lockdown will be considered," said the second person.
“Auto components and manufacturing will find it easier to qualify within the set RBI standards," he added.
According to rating agency Icra, real estate is among the top two sectors by number of negative rating actions between 1 March and 31 August. The real estate sector has witnessed 52 negative rating actions in this period, only trailing the textiles sector where the number of such actions stood at 61.
Icra said the outlook for residential real estate is negative, given the uncertain economic scenario and job security concerns. These can lead to deferral of real estate purchases that are discretionary and large-ticket in nature, and that the operating and financing environment remains challenging for real estate developers.