Credit rating agency Crisil on Thursday said nearly two-thirds among more than 8,500 companies rated by it would be eligible for one-time debt restructuring based on the financial parameters under the ‘Resolution Framework for Covid-19-related Stress’.

The RBI recently specified five key financial parameters that lenders have to take into account for finalising resolution plans for eligible borrowers in 26 sectors..

These parameters, which relate to leverage, liquidity and debt serviceability, were recommended by the expert committee headed by former ICICI Bank chief KV Kamath.

Subodh Rai, Senior Director, Crisil Ratings, said:“Three out of four investment-grade companies (rated ‘BBB-’ or higher) and one out of two in the ‘BB’ rating category qualify for restructuring. “However, in the ‘B’ category, only one in three qualify because companies here tend to have relatively weak debt protection metrics.” At an aggregate Crisil portfolio level, two out of three companies were found eligible for restructuring, he added.

While the qualification parameters have been defined by the committee, the agency said lenders are also expected to use their discretion when assessing each restructuring proposal. The study said restructuring will also be available to a large number of companies that opted for the moratorium. Every second company in Crisil’s portfolio that did so will qualify for restructuring.

Three out of four entities in the portfolio that availed of moratorium are rated in the sub-investment grade (rated ‘BB+’ or lower).

Resilient vs less resilient

While the parameters support debt restructuring across rating categories, Crisil’s study indicated that companies in the resilient sectors stand to benefit more.

Sectoral resilience is the ability of a sector to sustain the revenue impact of Covid-19 and bounce back to full production after the pandemic peters out.

The agency assessed that three out of four rated ones in the resilient sectors such as construction, chemicals, pharmaceuticals, iron and steel manufacturing, corporate retail, and consumer durables/FMCG (fast moving consumer goods) will qualify for restructuring.

In the less-resilient sectors such as auto dealerships, gems and jewellery, hotels, restaurants and tourism, power generation, and real estate, the study said opportunities for debt restructuring could be a little lower as these sectors can take longer to recover. Here, only one in three companies could be eligible for restructuring.

Rahul Guha, Director, Crisil Ratings, said: “The situation is still evolving and the actual number of eligible companies could increase in case of favourable developments such as faster-than-expected turnaround of the economy, banks choosing to convert interest charges to funded interest term loan or exploring other innovative ways of restructuring or promoters bringing in capital. A final picture on how many companies have qualified for restructuring will emerge only over the next 3-4 months.”

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