Resturucture the Corporates

1. Presentation By:-
Pawan Singh Raikhola

2. MEANING
“The process involved in changing the organisation of a
business.”
 Redesigning one or more aspects
 Implemented due to certain factors:
To be more profitable, survive economic conditions,
address challenges & increase shareholders value.

3. NEED & OBJECTIVES OF
CORPORATE
 To improve competitive position
 To rearrange the activities to be more profitable
 Cost reduction
 Utilisation of strategic assets
 Eliminate competitors
 To have an access to R & D
 Focus on core strengths

4.  Revive and rehabilitate a sick unit
 Constant supply of resources
 Tax benefits
 Improve corporate performance

5. BROAD AREAS
FINANCIAL
RESTRUCTURIN
G
OPERATIONAL
RESTRUCTURIN
G
MANAGERIAL
RESTRUCTURIN
G
ASSET
RESTRUCTURIN
G
Reduction of
capital,
reorganising the
equity and debt
base, buy back of
shares.
Product
restructuring
Market
restructuring
Improving the
manpower
New investments,
technological
changes, asset
reduction, sale and
lease back
transactions.

6. TECHNIQUES
EXPANSION /
GROWTH
TECHNIQUES
CONTRACTION /
DIVESTMENT
TECHNIQUES
OTHER
TECHNIQUES
 Mergers
 Takeover/ Acquisition
 Strategic Alliance
 Joint Venture
 Franchising
 Licensing
 Wholly owned
Subsidiaries
 Demerger / Spin off
 Disinvestment
 Slump Sale
 Buy out
 Leveraged Buy out
 Sell off
 Reverse Merger
 Debt Equity Swaps
 Buyback of Shares
 Asset Securitisation

8. FINANCIAL
RESTRUCTURING
Restructuring is a combination of two words ‘re’ and ‘structure’
where ‘re’ means again and ‘structure’ means construct or
arrange. Thus when the organization have to rearrange or rebuild
its internal structure to bring more efficiency and
competitiveness, it is called restructuring of the organization.
MEANING OF FINANCIAL RESTRUCTURING
Every company has two main sources of finance i.e. debt and
equity and a successful organization always creates a perfect
balance of debt and equity in its capital structure. Sometimes the
capital structure may get off balance due to certain changes
which are beyond the control. This balance is thus restored by
financial restructuring.

9. CAUSES OF FINANCIAL
RESTRUCTURING
 MISAPPROPRIATION OF FUNDS
 OBSOLETE
 LACK OF OPTIMUM UTILISATION OF RESOURCES
 SHIFT IN CONSUMER PREFERENCES
 INEFFIOCIENT MANAGEMENT
 EXTERNAL FACTORS
 DISSATISFIED WORKERS, STRIKES,LOCK OUTS
ETC

10. NEED OF FINANCIAL
RESTRUCTURING
 At the time of promotion and incorporation of the
company.
 At the time of expansion of an existing company.
 At the time of amalgamation and absorption of two or
more companies.
 At the time of re-organization of capital of the company.

11.  It is the desire of every company to have a fairly capitalized
situation i.e. neither over-capitalization nor under –
capitalization
 The over capitalized company can be restructured by:
a)Buy back of shares
b)Redemption of preference shares
c)Reduction of funded debts
d)Reorganisation of equity capital
 An under capitalization can be correctd By
a)Fresh issue of shares
b)Issue of bonus shares
c)Increasing par value of shares

12. FINANCIAL RESTRUCTURING
SHOULD NOT BE ENCOURAGED IN
FOLLOWING CASES
 TO ELIMINATE COMPETITION
 TO OVER PROTECT THE COMPANY FROM
COMPETITION
 TO COMPENSATE THE INEFFICIENCY OF THE
MANAGEMENT
 TO PROTECT THE INDUSTRY AT THE COST OF
QUALITY

13. STEPS IN FINANCIAL
RESTRUCTURING

14. Corporate Debt
Restructuring
 Corporate debt restructuring helps in
restructuring the existing debt obligations by
delaying the repayment time or converting the
debt into equity shares or reducing the rate of
interest to be paid on these obligations.
This process is voluntary and non regulatory.

15.  In simple words
Corporate Debt Restructuring (“CDR”) mechanism is a
voluntary non statutory mechanism under which
financial institutions and banks come together to
restructure the debt of companies facing financial
difficulties due to internal or external factors, in order
to provide timely support to such companies.

16. Definition
 Debt restructuring is a process that allows a
private or public company, or a sovereign entity
facing cash flow problems and financial distress to
reduce and renegotiate its delinquent debts in
order to improve or restore liquidity so that it can
continue its operations.

17. Features
 Voluntary mechanism
 Non statutory process
 Allows public and private companies both to
restructure
 Reorganizes the debt obligations
 Helps in reviving the sick companies
 Helps in restoring the liquidity of the companies
stuck in debt trap.

19. Importance
Helps the business to control their finances
Improves credibility
Help from third party

20. Satisfy creditors
Protects the company from bankruptcy
Helps in reviving a sick unit
Reduces NPA of various financial institutions

21. Improves economic condition
Alternatives to BIFR
The Board for Industrial and Financial Reconstruction (BIFR) is
an agency of the government of India, part of the Department
of Financial Services of the Ministry of Finance. Its objective is
to determine sickness of industrial companies and to assist in
reviving those that may be viable and shutting down the
others.

22. CDR STRUCTURE
 CDR was introduced in 2001 as a voluntary and non
statutory system and is based on the system prevalent
in London where the company is saved from
insolvency through Debtor Creditor Agreement (DCA)
and Inter Creditor Agreement(ICA)
 RBI issued guidelines in 2012 to deal with both CDR as
well as non-CDR

23. THREE TIER STRUCTURE
 CDR is implemented through three tier structure :
1. CDR Standing Forum and its Core Group
2. CDR Empowered Group
3. CDR Cell

24. CDR STANDING FORUM
 This is the topmost layer of the CDR system and helps
in smooth functioning of the Self Empowered Group.
 There is also a CORE GROUP which helps in taking
decisions relating to policy.
 This core group is responsible for laying down
guidelines and monitoring the process of CDR .

25. CDR EMPOWERED GROUP
 The first layer deals with general guidelines, the next
layer consists of specific cases as per guidelines of
STANDING FORUM
 The company will have to apply for the CDR to CDR
Cell which will examine the request filed by the
company
 The cell will then check the feasibility of request on
the basis of Standing Forum guidelines

26. CDR CELL
 The CDR Cell helps CDR Standing Forum and
Empowered Groups in performing functions and work
out a plan within 30 days with the help of other
creditors and experts.
 According to the proposal final decision is taken by
Empowered Group.

27. METHODS OF CDR
1. Increasing the term of loans
2. Converting the debt into equity
3. Reducing share capital or changing its composition
4. Extension of repayment period of the existing debt
and rescheduling
5. Reduction of high interest on the loan
6. Re-phasing recovery programs

28. 7. Reducing margins
8. Reassessing credit facilities such as working
capital
9. Procuring extra money
10. Conversion of the unpaid interest
11. Conversion of the compound interest into
simple interest

29. TRENDS IN CDR
 The CDR progress reports indicate 285 live cases
dealing with the debt of Rs. 286405 crores
 Infrastructure ,Iron and Steel , textiles etc. are some of
the main sectors which are resorting to CDR
mechanism
 Therefore CDR in India has shown higher trend and its
demand has been increasing since its inception