10,607.3555.65
Stock Analysis, IPO, Mutual Funds, Bonds & More

Realisation for financial creditors from resolution of stressed units may be lower by 40 per cent in FY21: ICRA

The resolution of corporate insolvency resolution proceedings (CIRPs) would be impacted during 2020-21 due to a decline in the number of CIRPs yielding a resolution plan as well as an increase in haircuts that lenders would have to take, ratings agency ICRA said in the report.

PTI|
Last Updated: Jun 03, 2020, 05.00 PM IST
0Comments
Getty Images
bankruptcy-getty
Last month, the government suspended filing of new bankruptcy cases for one year.
The realisation for financial creditors from resolution of stressed projects facing insolvency proceedings is likely to be lower by 30-40 per cent to Rs 60,000 crore-Rs 70,000 crore in the current financial year, due to the impact of the COVID-19 pandemic and also as fresh IBC proceedings have been suspended, according to a report. Last month, the government suspended filing of new bankruptcy cases for one year.

The resolution of corporate insolvency resolution proceedings (CIRPs) would be impacted during 2020-21 due to a decline in the number of CIRPs yielding a resolution plan as well as an increase in haircuts that lenders would have to take, ratings agency ICRA said in the report.

"The financial creditors could realise about Rs 60,000 crore-Rs 70,000 crore in 2020-21 through successful resolution plans from the IBC as compared to about Rs 1 lakh crore realised in FY2020," the domestic rating said in the report.

Till March 2020, the financial creditors had realised Rs 1.74 lakh crore (45 per cent of claims) from CIRPs that had yielded a resolution plan, mainly due to resolution of eight large companies out of the RBI's first list of 12 large non-performing assets.

Realisation from these eight companies alone stands at about Rs 1.36 lakh crore (57 per cent of claims).

The report said the resolution amount would also be lower in 2020-21 as the previous year witnessed large-size non-performing assets successfully concluding the CIRPs.

In this financial year, a successful resolution of housing finance company Dewan Housing Finance Corp Ltd (DHFL) is going to be the key determinant of the extent of the amount the financial creditors would realise during the year, the report said.

"In the current environment, the ongoing and even future CIRPs are likely to suffer from lower valuations and possible lesser interest from bidders due to the uncertainty across many sectors," the rating agency's Vice-President Abhishek Dafria said.

The time period required for successfully concluding a CIRP would also increase, as in addition to the lockdown period, the creditors need to provide additional time to the bidders for due diligence or in case of unsatisfactory bid results may have to go for extension of bid timelines or for further rounds of bidding, he said.

The report further said suspension of fresh insolvency proceedings for a period of one year would ensure relief for the companies that are severely impacted by the COVID-19 pandemic and are unable to meet payments to their creditors.

However, if the severity of the pandemic were to increase, thus delaying economic revival, then we could see a sudden surge in cases being referred under the IBC after the one-year period, it said.
(Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

Also Read

Realisation for financial creditors at 34% in Q2

IBC: SC upholds homebuyers’ rights as financial creditors

Haircuts for operational creditors are at par with financial creditors: Icra

Haircuts for operational creditors in line with that for financial creditors

SC upholds IBC amendments giving financial creditor status to homebuyers

Cabinet okays IBC tweaks, gives financial creditors upper hand

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service