m




 





   



÷

 


y Non-convertible debt securities which create or
acknowledge the indebtedness, including debentures,
bonds or such other securities of the company

y Non-government debt securities issued by a for-profit

company
`
÷


y ©o raise money for expansion or other business needs

y Allows the companies to create their own financing

without affecting shareholders or going to banking
institutions for the money
`
  
y ©he costs involved in borrowing money directly from a
bank are expensive

y Restrictive and expensive than selling debt on the open

market through a bond issue

y Investors will purchase corporate bonds with a time

horizon of 5 - 10 years. Banks are unwilling to agree to
such lengthy loan periods, because as the length of a
loan stretches out and the risks associated with the loan
increases
`
  
 
y Issuing additional shares, will dilute the value of
existing shares in the marketplace, if there is not
enough demand for the stock
’


  ÷


y In vogue since 1980

y Different instruments ȂDebentures, NCD, CP, Deep

discount bonds, secured promissory notes etc.

y Mostly private placement

r
 ÷


 
y Corporate bonds and notes are hardly regulated, since
they mostly trade in Over ©he Counter markets

y SEBI Ȃ Stock Exchange traded debt

y RBI Ȃ O©C traded debt

`  ÷


r 




y ©he reorganization of a company's outstanding

obligations, often achieved by reducing the burden of
the debts on the company by decreasing the rates paid
and increasing the time the company has to pay the
obligation back
© r 
y `hen a company is in financial crisis and is having
difficulty in meeting its short term and long term
obligations
y ©imely & transparent mechanism for restructuring the
corporate debt
y Preserving viable corporate
y Minimise the losses of creditors and other
stakeholders
DzPrevention is Better than Curedz
r
÷



÷r
y ©he scheme will not apply to accounts involving only
one financial institution or one bank

y ©he CDR mechanism will cover only multiple banking

accounts with outstanding exposure of Rs.20 crore and
above
rr

 ÷r
Reference to Corporate Debt Restructuring System
could be triggered by

(i) any or more of the creditor who have minimum

20% share in either working capital or term finance, or

(ii) by the concerned corporate, if supported by a bank

or financial institution having stake as in (i) above
r
÷



÷r
y ©he ÷
  ÷


 will be applicable only to
accounts classified as 'standard' and 'sub-standardǮ in the
books of at least 90% of lenders (by value)

y BIFR cases are not eligible for restructuring under the CDR
system

y However, large value BIFR cases, may be eligible for

restructuring under the CDR system if specifically
recommended by the CDR Core Group
y ©he Core Group shall recommend exceptional BIFR cases
on a case-to-case basis for consideration under the CDR
system
r
÷



÷r
y ©he ÷
  ÷


 for cases where the
accounts have been classified as Ǯdoubtfulǯ in the books
of at least 75% of lenders (by value)

y ©here would be no requirement of the account/

company being sick, NPA or being in default for a
specified period before reference to the CDR system

y However, potentially viable cases of NPAs will get

priority. ©his approach would provide the necessary
flexibility and facilitate timely intervention for debt
restructuring
x
r 

÷r
y Extension of the scheme to entities with outstanding
exposure of Rs.10 crore or more

y Requirement of support of 60% of creditors by

number in addition to the support of 75% of creditors
by value with a view to make the decision making
more equitable
÷r 



A ©hree tier structure:

y CDR Standing Forum and its Core Group Ȃself

empowered body

y CDR Empowered Group

y CDR Cell
÷r 

y Representative body of all CDR member FIs, Banks
y Self empowered body
y Comprises Chairman/ CMDs of all member FIs/ Banks
& Chairman of IBA. It Lays down policies and
guidelines
y Monitors progress of CDR
÷r÷


y Small group carved out of Standing Forum
y Comprises Chairman/ CMDs of IDBI, SBI, ICICI Bank,
PNB, BOI, BOB, Chairman & IBA
y Assists Standing Forum in formulating policies
y Addresses operational difficulties of CDR Empowered
Group
y Lays down guidelines for workouts
÷r 


y Executive Director level representatives of
IDBI, SBI, ICICI Bank as standing members
y Senior Executives of FIs, banks with exposure
in concerned company
y Voting in proportion to exposure/ no.
y Approval by super-majority (75% by value &
60% by number)
y Executives attending EG meetings should have
general authority from their Boards to take
decisions
÷r÷
y Assisting CDR Standing Forum/ Core Group/
Empowered Group
y Making initial scrutiny of proposals
y Placing proposals for consideration of Empowered
Group
y ©o be initially housed in IDBI
y Administrative/ other costs shared by all members
y Staff deputed from CG member banks/ FIs
y May take outside professional help
Ú


    






Equity share
54.72 54.72 54.72 54. 5 54.5
capital

Share
application - - - - -
money

Preference
share capital - - - - -
Reserves &
22.55 971.31 9 1.84 75 .54 5 .12
surplus
 

Secured loans 749.15 253.98 222.1 315. 3 333.17

Unsecured
1, 71.49 554.83 485.34 494. 8 483.22
loans

!"#" !$#$ !# !#" !$#
 å


O
 O
 O
 O
 O

%&'



Gross block 925.21 76 . 2 706.13 87.35 08.35

Less : revaluation
- - - - -
reserve
Less :
accumulated 2 .17 19 .67 157.88 121.73 98.10
depreciation
Net block 681.03 569.75 5 8.25 365.62 310.25
Capital work-in-
399.15 3 0.92 153.01 231.1 150. 7
progress
Investments 302.60 302. 7 159.89 18 .28 175.16
(





Current assets,
2,116.11 1,067.82 1,219.89 1,172.21 1,097.28
loans & advances
Less : current
liabilities & 1,000.99 6.12 16.99 338.36 296.15
provisions
©otal net current
1,115.12 621.69 802.90 833.86 801.13
assets
Miscellaneous
expenses not - - - - -
written

 !"#" !$#$ !# !#" !$#
×
   

`
 

y October 2006- Ireland based Pinewood Laboratories
for $150 million

y May 2007- France based Negma Laboratories for $265

million

y November 2007- US based Morton Grove Pharma for

$38 million
`
`
 


÷r
y Racked up debt of Rs ,235 crore by December 2008
y Booked Rs.5.8 billion of hedging losses in 2008
y Another Rs. .9 billion as a result of default on margin
payments
y Decided to hedge its exports in 2008Ȅ comprising 70
per cent of the companyǯs revenues
y ©he result was: the interest cost jumped 200%, foreign
exchange loss of Rs 581 crore and net loss of Rs 139
crore were posted for the financial year ended
December 2008
`
`
 


÷r÷ 
y As of December 2008, the company had net liabilities
worth Rs 3, 00 crore
y ©he company had to repay FCCBs worth $1 0 million,
which were due for redemption in October, and
External Commercial Borrowings (ECBs) of $250
million
’  
÷r
y Had to commit sale of non-core assets at an estimated
value of Rs 790 crore within six years to repay the priority
loans
y ©he promoters to infuse another Rs 70 crore
y ©he lenders have given `ockhardt a moratorium of a year
on all its existing loans
y A priority loan of Rs 516 crore would be given by the CDR
lenders, repayable in eight equal quarterly instalments
starting September 15, 2010
y Can also avail of an additional working capital of Rs 255
crore.
’  
÷r÷ 
y ©he FCCBs holders will have two options:
# ÷
) ** +
©he company will buy back the bonds only if the
bondholders offer average discount in excess of 65 per
cent of the redemption value of the bond
# ,')   '&

& *
&
)
) -
) 


) -  .&/ 


) -
& / 

Half of the preference shares will be optionally convertible
to equity after October 25, 2015, at the then applicable Sebi
formula. ©he balance will be given cumulative dividend
and be redeemed at a premium of 38 per cent on December
31, 2018
  `
 

y `ockhardt informed BSE that the CDR Empowered Group
headed by ICICI Bank approved the package on June 30, 2009
y Divesting its stake in several of its subsidiaries was one of the
strategies adopted by `ockhardt
y In August 2009, it sold 10 hospitals to Fortis Healthcare for Rs.
909 Crores ($186 million).
y Sold its nutritional business to Abbott Laboratories for Rs.
627 Crores ($130 Million) and its animal health division to
French company Vetoquinol for approximately Rs. 170 Crores
($ 36 Million)
y Sold their German subsidiary, Esparma for Rs. 120 Crore ($
25.8 Million). It had acquired this unit in May 200 for Rs. 9
crore, so this has proved to be a good deal
  `
 

÷ 
y Restructuring of debt and fresh priority debt by banks
and pending divestment of non-core assets is a
positive step forward and will provide a great impetus
to the core operations of `ockhardt
`
 
 ! 
y `ockhardt is sitting on a total debt of Rs.3100 crore of
which rupee debt, borrowed from ICICI Bank, SBI, IDBI,
BOI, ING and PNB stands at Rs.2000 crore. Forex debt is at
Rs.1100 crore, taken mainly from ICICI Bank and some
more foreign banks.

y ©he reason for the mounting debt has been the overseas
acquisitions made by the company in the last two years

y As per the CDR worked out, the debt has been rescheduled
to 7 years from 5 years. Interest rate has also been reworked
at 8-9% compared to the 12.5% it is paying now. So the
savings which would be made on account of the lowering of
interest rates would be quite substantial
`
 
 ! 
y Promoters of the company, who own
7 % stake, have already pledged 79.21%
of this. ©hey now plan to raise
additional funds by selling their
biotech and vet unit

y ©he cash raised would be infused back

into the company. Promoters also plan
to raise Rs.50 crore via equity
r
  
y ©he board has approved a preferential issue of up to
00 million convertible or non-convertible redeemable
preference shares
y `ill also issue foreign currency mandatorily
convertible bonds (FCMCBs) up to $7 .09 million in
exchange of existing foreign currency convertible
bonds (FCCB) of the same amount
y Out of the above outstanding FCCBs, majority
bondholders holding bonds of $ 2 million have agreed
to subscribe for the FCMCBs and the same offer will be
given to the balance bondholders
÷  
÷r

y Subhiksha, ©he Retailer
y Maytas Infra
y BASF
y 1 textile companies
y S. Kumarǯs
y Arvind Mills
y MAL`A Cotton Spinning Mills Ltd.
y Gangotri ©extiles
y Soma ©extiles
y Filatex India Ltd., etc.
÷  
÷r

y 6 Steel Sector Companies:
y Essar Steel
y Jindal Stainless Steel
y Mahindra Ugine Steel
y Southern Iron and Steel Company, etc.
 


r
r

 
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X www.cdrindia.org

Xwww.rbi.org.in

X Mint website

XEconomic ©imes Article