corporate debt-restructuring

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  • 1. Corporate Debt Restructuring at PNB Submitted To: Prof. Vinay K. Dutta Submitted By: Ritu Agarwal 91044 Roshan Sonthalia 91045 Saket Kumar Singh 91046 Samarth Gulati 91047

2. Corporate Debt Restructuring 2 Acknowledgement It is our privilege to extend our heartiest thanks to all those who have directly or indirectly contributed significantly to complete this project with utmost accurate, validity and authenticity. We would like to express my earnest gratitude to Prof. Vinay Dutta, Sr. Professor & Area Chairperson, FORE School of Management, for the stupendous guidance and support that he provided to us during the execution of the project. We would also like to thank Mr. Narendar Thakran for giving us this golden opportunity to work on CDR in Punjab National Bank. His role in providing a vivid insight into the topic goes beyond the realms of any text book. Thanking all 3. Corporate Debt Restructuring 3 TABLE OF CONTENTS Chapter 1 Introduction........................................................................................................................................................... 5 Characteristics of CDR....................................................................................................................................................... 5 Objective................................................................................................................................................................................. 6 Chapter 2 Sources of Data.................................................................................................................................................... 6 Chapter 3 Method of Research........................................................................................................................................... 6 Chapter 4 Literature Review............................................................................................................................................... 7 Chapter 5 Understanding CDR.........................................................................................................................................10 Recovery Mechanism......................................................................................................................................................10 Debt Recovery Process...................................................................................................................................................10 Normal Recovery Procedure...................................................................................................................................10 Difficult recovery process.........................................................................................................................................11 Modes of Recovery...........................................................................................................................................................12 Importance of CDR......................................................................................................................................................13 Present Status of CDR cases .........................................................................................................................................14 Prudential and Accounting Issues.........................................................................................................................15 Chapter 6 CDR Mechanism in India.................................................................................................................................16 Objective ...............................................................................................................................................................................16 Structure ................................................................................................................................................................................16 CDR Standing Forum ..................................................................................................................................................16 CDR Empowered Group............................................................................................................................................17 Eligibility Criterion...........................................................................................................................................................18 Chapter 7 Financial Viability Parameters....................................................................................................................20 Return on Capital Employed........................................................................................................................................20 Debt Service Coverage Ratio........................................................................................................................................20 Gap between Internal Rate of Return and Cost of Capital ...............................................................................21 Extent of Sacrifice.............................................................................................................................................................21 Other Financial Parameters..........................................................................................................................................22 Break-Even Analysis...................................................................................................................................................22 Gross Profit Margin.....................................................................................................................................................22 Loan Life Ratio ..............................................................................................................................................................23 Chapter 8 Live Case Study..................................................................................................................................................24 4. Corporate Debt Restructuring 4 Major Problem Areas ......................................................................................................................................................24 Adverse Effect of reviewing accounting policy ....................................................................................................24 Failure to raise funds through Right Issue.............................................................................................................25 Effect of failure of companys effort for a slump sale of COMAPNY Xs business...................................25 Global Recession and its effect on companys business....................................................................................26 Future Outlook for the Company ...............................................................................................................................26 Marketing Viability...........................................................................................................................................................26 Demand and Supply Analysis.........................................................................................................................................26 Future Market Demand and Supply..............................................................................................................................27 Term Lenders CDR...........................................................................................................................................................29 Working Capital Lenders (CDR).................................................................................................................................29 Non CDR Lenders..............................................................................................................................................................30 Restructuring Proposal......................................................................................................................................................30 Restructurization of term loans..................................................................................................................................30 Restructuring of Working Capital.................................................................................................................................31 OCCPRS .................................................................................................................................................................................32 WCTL ....................................................................................................................................................................................33 Funding of interest accruing from cut off date to 30.09.2011 by converting the same into Funded Interest Term Loans (FITL) ............................................................................................................................................33 Total FITL Calculation.....................................................................................................................................................34 Allocation of Drawing Power (DP) ..............................................................................................................................34 Additional WC funding....................................................................................................................................................35 Promoters Contribution ..................................................................................................................................

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