CDR CASE STUDIES + BIFR & DRT V.

CDR

Anjaneya Das 2008-11

CONTENTS
CDR v. BIFR and DRT Case studies

CDR V. BIFR AND DRT

BIFR (SICA, 1985)
Issues Performance Verdict DID NOT SERVE THE PURPOSE. 1. Complete Erosion 1. Liquidation How can you revive? recommended 2. Standstill Companies summarily in a lot of taking advantage of cases. this to defraud 2. Schemes for revival creditors short-term, company relapses into sickness. 3. Approximately 9-10% success.

DRT (RDB ACT, 1993)

Issues 1. Stalling the process of DRT by parallel litigation in civil courts. 2. Inter-creditor issues Performance Verdict 1. Priority? Worked better than BIFR, 2. Still a judicial measure. still caused the enactment of SARFAESI.

CDR
More flexible, negotiation possible between lenders and borrower. Private approach, no need for judicial measures. Priority still an issue (Wockhardt). All said, lot more successful than BIFR and DRT.

CDR: SOME STATISTICS

180 160 140 120 100 80 60 40 20 0 Number of CDR cases 2001-05 2005-10 2010-12

CASE 1: INDIA CEMENTS LTD. (2002)

Excess capacity in the market no demand sales fell drastically. High cost acquisitions before the market slump debt of 1793 Crore.

CDR measures:
Divest interest in acquired companies such as Visaka Cements etc. Debt rescheduling : Progressive rate of interest (3% in FY2003 12% in FY2012). Moratorium of 3 years on payment of principal amount. Moratorium of 11 years on full payment.

INDIA CEMENTS TODAY

Restructuring + Construction Boom = Record profits in FY2009 Losses and outstanding debt wiped out by December 2006.

CASE 2: WOCKHARDT (2009)

Precarious financial position Approached ICICI to start the CDR process

CDR Measures: FCCBs

Equity Conversion

Redemption at capital loss of 65%

Larger secured lenders went for conversion to preference shares. Smaller lenders, foreign lenders, unsecured lenders winding up petition in Court! Finally, settled with Asian hedge fund QVT. What does CDR achieve if demands are contradictory?! Foreign lenders? Small lenders? Unsecured lenders? Kotak Mahindras pullout in 2011

DANGEROUS WATERS

Indage Vintners :
400

Crore in debt Deferral of debt obligations for 2 years Infusion of fresh capital (75-100 Crore) at the personal guarantee of promoters Still uncertain, CDR on hold, banks waiting to file winding up petition.

PROPOSED CASES:
Ventures 4300 Crore debt reduction in interest rates, divesting ventures, debt rescheduling. Basix Inc microfinance firm 800 Crore proposal 500 Crore fresh equity infusion and 300 Crore towards restructuring of long term debts.
Leela