Less than 1% of companies went for restructuring under second offer: Crisil

Rating agency says tepid response despite second wave reflects positive turn in demand outlook, and anxiety about negative stakeholder perception of restructured firms

Less than 1 per cent of the eligible companies opted for the restructuring option offered for the second time by the Reserve Bank of India (RBI) as part of its Covid relief package, rating agency Crisil said on Thursday. The restructuring 2.0 window closed on September 30.

“The tepid response — despite an intense and more virulent second wave of the Covid-19 pandemic — reflects the positive turn in demand outlook, and anxiety about negative stakeholder perception of restructured companies,” Crisil said in a statement.

Crisil’s estimate was based on its rating universe of mostly mid-to-large-sized companies. Crisil qualified that this finding may not reflect the predicament of micro and small enterprises, many of who could be severely affected, but barely opting for credit rating.

In August, the rating agency had come to a similar preliminary conclusion, analysing 4,700 companies that it rated.

Crisil said none of the companies opting for restructuring belonged to investment grade (‘BBB’ or higher).

“Even among the companies in the sub-investment grade category (‘BB’ or lower) — where weaker credit profiles abound — a significant 98 per cent did not seek restructuring,” it said.

The rating agency ran its framework across 43 sectors that accounted for 76 per cent of the total corporate debt it rated. It found 37 sectors witnessing demand rebounding to near the pre-pandemic levels. This could be because the impact of the second wave on the cash flows was short-lived, as restrictions were localised and less stringent compared with the first wave.

Around 88 per cent of the rated debt under the framework were in sectors where demand has or is expected to fully recover in the current fiscal to the pre-pandemic levels. These included essentials such as FMCG, pharma and telecom, and infrastructure-linked sectors such as cement, power, roads and construction, according to Subodh Rai, chief rating officer, Crisil.

Such broad-based recovery, and the expansion of the Emergency Credit Line Guarantee Scheme (ECLGS) and its extension till March 31, 2022 — has helped companies manage temporary liquidity disruptions, Crisil said.

The ECLGS support may have prevented micro and small enterprises, the primary beneficiaries of the scheme, from going for restructuring.

“The impact on long-term credit history also kept away many companies. That’s because lenders would classify their accounts as ‘restructured’, which would impair their ability to raise debt in future,” Crisil said.

The RBI had announced the fresh restructuring scheme during its monetary policy review on May 5. The scheme was available for individuals, small businesses, and micro, small and medium enterprises (MSMEs) with aggregate exposure of up to Rs 25 crore provided they had not availed of benefits under any of the earlier restructuring frameworks, including the resolution framework 1.0 announced on August 6, 2020. The precondition of the scheme was that the accounts were supposed to remain standard as of March 31, 2021.