Companies are hiving off their non-core assets in order to pare off their debt. SBI estimates that Rs2 lakh crores of asset sales are in the pipeline/already completed by debt-ridden companies having a debt exposure of around Rs 10 lakh crore. The report titled ‘The Journey from ‘House Of Debt’ to ‘House Sans Debt’ further adds that at least 10% of these asset sales should be through the listing route. The report states that around 270 companies reported a decline in debt by Rs47,813 crore whose financial year ends in 2015.
Certain companies like Sanghi Industries, Indo Count Industries, Haldia Petrochemicals, Ginni Filaments have exited Corporate Debt Restructuring (CDR) mechanisms. Some cash-rich Indian corporates have helped these companies to exit CDR mechanisms. For instance, cash-rich Piramal Group has bought non-convertible debentures (NCD’s) of debt-laden companies to aid them exit CDR mechanism. It helped Sanghi Industries, the flagship company of the Ravi Sanghi Group dealing in the production and distribution of cement under the brand name ‘Sanghi Cement ‘ exit CDR by buying Rs257 crore of its NCD’s. Sanghi Industries was able to repay its CDR lenders ahead of schedule due to this purchase of NCD’s. Similarly, cement company NCL Industries Ltd, the owner of the Nagarjuna Cement brand, has also been able to exit CDR mechanism due to purchase of Rs325 crore of non-convertible debentures (NCD’s). The company management has stated that it has paid Rs125 crore to the existing bankers out of the proceeds of the issue. According to the SBI report, some foreign companies are also using this opportunity to either establish or consolidate their presence in the Indian markets.
Credit to stressed sectors grew at 5.9% in FY14-15, but decelerated to 2.6% in FY15-16 as per the report. The report further stated that Oil and Natural Gas Corporation (ONGC), Grasim, Bajaj Holding, Gujarat Mineral Development Corporation Ltd (GMDC), Metals and Minerals Trading Corporation of India (MMTC), Lupin, DCM Shriram and some pharma companies reduced debt levels in the year 2015. Coming to major corporate groups, Reliance ADAG (Anil Dhirubhai Ambani Group), Jaypee Group and JSW Group reduced their debt equity ratios in 2015 vis-a-vis 2014. On the contrary, Adani Group, GMR Infrastructure, GVK Group, Tata and Vedanta group increased their debt equity ratios. GVK Group witnessed a huge rise in deby equity ratio to 11 in 2015 from 7.26 in 2014.
The debt-laden Lanco group completed the sale of its Udupi plant for Rs6,300 crore. Jindal Stainless Ltd (JSL) undertook a restructuring of its business operations. Similarly, wind energy major Suzlon Energy of the Tulsi Tanti group had to sell its German subsidiary Senvion for Rs 7,200 crore. The proceeds from the sale were used to reduce its debt by around Rs6,500 crore.
Many companies are in the process of planning to sell some of their assets. The Lanco group is planning to sell its power assets of a whopping Rs25,000 crore in order to pare of its debt. Tata Steel has decided to divest its UK assets purchased from Corus group Plc. in 2007 inorder to cut its losses and reduce its debt. It remains to be seen the extent to which other companies from high debt sectors like power, steel, infrastructure and realty sell off their assets inorder to reduce their debt.
Recently, the Bankruptcy Code viz Insolvency and Bankruptcy Code 2016 was passed in the Rajya Sabha. The new law will replace many archaic legislations. Many are hopeful that this new law will help companies exit businesses faster.