Less than 1% of eligible companies opted for restructuring 2.0 : CRISIL

Less than 1% of eligible companies opted for restructuring 2.0 : CRISIL

The Reserve Bank of India's opportunity for reorganisation under Resolution Framework 2.0 closed on September 30 with little use. Fewer than 1% of the CRISIL Ratings portfolio's eligible enterprises chose to restructure their debt using the facility.

Despite a second, more intense, and more deadly wave of the Covid-19 pandemic, the response has been lacklustre, reflecting a shift in demand expectations and concerns about stakeholder perceptions of restructured firms.

CRISIL Ratings use a proprietary framework4 to gauge demand recovery and sector resilience. This measures the resiliency of 43 different industries, which together account for 76% of all CRISIL-rated corporate debt.

According to the results, demand has risen to or is close to pre-pandemic levels in 37 industries. This phase's impact on company cash flows was minimal because limitations were more localised and lenient than in the first wave.

Around 88 percent of the rated debt under the framework is in industries where demand has recovered or is likely to recover fully to pre-pandemic levels, according to CRISIL Ratings Chief Ratings Officer Subodh Rai." FMCG, pharmaceuticals, and telecommunications are examples of necessities, while cement, power, roads, and construction are infrastructure-related businesses. The recovery has been so broad that it has reduced the requirement for corporate reorganisation in CRISIL's rated portfolio."

It also helped enterprises handle transitory liquidity problems to maintain robust government support — such as the expansion of the ECLGS scope and its extension through March 31, 2022. Small businesses, especially micro and small ones, are under a lot of pressure. ECLGS eliminates the requirement for Restructuring 2.0 for them.

Many businesses stayed away because of the negative impact on their long-term credit history. Due to lenders classifying their accounts as "restructured," they would be unable to raise additional loans in the future.

When it came to credit profiles, none of the CRISIL-rated enterprises who chose Restructuring 2.0 had a rating higher than investment-grade (a "BBB").

More than 98% of enterprises with credit profiles that qualify as sub-investment grade ('BB' or worse) did not seek reorganisation.

It's important to remember that these results only apply to CRISIL-rated enterprises, which tend to be medium-sized or larger. As a result, they may not accurately reflect the plight of micro and small businesses, of whom only a small percentage are rated.

If a third wave of the pandemic arrives, it will be important to monitor its impact.