BackOne-time loan recast to ease liquidity pressure on companies: CRISIL
One-time restructuring of corporate loans, which are facing stress due to coronavirus-induced disruptions, announced by the RBI is likely to ease liquidity pressure for companies, the CRISIL report said
PremiumMUMBAI : One-time restructuring of corporate loans, which are facing stress due to coronavirus-induced disruptions, announced by the Reserve Bank of India (RBI) is likely to ease liquidity pressure for companies, according to a report.
On Thursday, the RBI permitted banks to go for one-time restructuring of loans that are facing stress due to the COVID-19 crisis with a view to mitigating risks to financial stability.
"The decision of RBI to enable lenders to permit a one-time restructuring of loans will ease the liquidity pressure on companies amid the COVID-19 pandemic," rating agency Crisil Ratings said in a report.
Several corporates are likely to explore the opportunity to restructure their loans in order to conserve liquidity, especially given the continued weakness in demand amid economic recession, it said.
The restructuring window will be open only for companies that are under stress due to the pandemic and that were classified as standard, but were not in default for more than 30 days with any lending institution as on March 1, 2020.
The rating agency said it will factor in the impact of debt restructuring on its rated credits as and when the process is initiated, and its rating action will depend upon the timeliness and terms of the restructuring of debt.
It will also continue to factor in any structural deterioration in the credit risk profiles of its rated companies amid prolonged business-side pressures, or such other reasons, in the normal course of rating reviews.
The agency said its analysis will take into consideration the rated entity's resilience and its expectations on the pace and extent of normalisation of its cash flows. In addition, the revised debt repayment terms after restructuring will also play a crucial role.
Given that the moratorium announced by the RBI is ending on August 31, and the cash flows across a vast majority of rated entities are taking time to normalise, timely support from the lenders in terms of approving restructuring plans quickly will be critical to avoid sharp credit cliffs, the report said.
Assuming that the restructuring terms formulated by the bankers aimed at ensuring the credit profile remains broadly in line with the pre-COVID-19 levels, the agency sees four scenarios.
One, if the restructuring application is approved by the lenders before the due date of repayment, the rated entity's credit profile is unlikely to face any sharp rating action, it said.
Second, if the restructuring application is made before the due date of repayment and the lenders are not averse to accepting the application, but a formal approval is awaited, the rating agency may place the ratings under 'watch' and the formal restructuring approval will be required to resolve the watch, the agency said.
In the third scenario, the rating agency said if the restructuring application is made before the due date of repayment, but the lenders have reservations against the application, though the final decision is yet to be formalised, the ratings could be downgraded and also placed on a 'watch negative'.
If the restructuring application is made after the due date of repayment and repayments are missed in the interim, the ratings could be downgraded to default rating 'CRISIL D', the report said.
"Debt restructuring can lead to multiple situations and likely rating actions. Crisil recognises default on the first instance of missed payment on a rated instrument.
"Therefore, any stoppage of debt servicing without final documented approval of the respective bank may lead to rating action," the agency's Senior Director Subodh Rai said.
Crisil said it will take a view on a case-to-case basis after factoring in the standalone credit risk profile of the company, while factoring in the relaxations given by the Securities and Exchange Board of India for process-related issues amid the pandemic.
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