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Corporate sector to shed out distress assets worth of Rs 2 lakh crore

A man carrying the cash. Image source- internet

With increasing pressure from banks to repay some of its debt, Indian corporates are expected to sell assets worth up to Rs 2 lakh crore to shed a part of their outstanding debt of Rs 10 lakh crore.

Indian companies with large debt have set aside assets worth Rs 2 lakh crore  to sell and repay their mounting debt.

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Cash-rich companies are also playing good Samaritans, helping their stressed peers to come out of the debt pile. Piramal group, Sun Pharma and Ultratech are some of the cash-rich companies that have helped companies to repay their debt to banks.

According to an analysis conducted by the economic research department of the State Bank of India (SBI), some of the companies with large debt like the Reliance ADAG, which has loans of Rs 1,24,956 crore, has set aside assets in telecom, insurance, electricity and road worth Rs 59,761 crore for sale. Essar Group, with a debt of Rs 1,01,464 crore, is trying to sell steel assets worth Rs 50,000 crore, while Vedanta, with a debt of Rs 1,03,340 crore, can sell off assets worth Rs 6,000 crore. The Adani group, having a debt of Rs 96,031 crore, is contemplating selling assets worth a similar Rs 6,000 crore in mines, port and overseas assets. Global brokerage Jefferies said it expects more troubles for banks for the next five quarters more.

Bank chiefs across banks are talking of reducing the concentration risk and bringing down the debt levels by forcing companies to sell off their non-core assets.

Chanda Kochhar, managing director and chief executive officer, ICICI Bank, recently said in a media interaction after their quarterly results, “Around every stressed company, we have an action plan. We are working on resolutions with the promoters for them to either sell their core assets or non-core assets to bring down their leverage because of which some of these exposures for us will go down and there is a possibility that some of the entities may also turn around.”

ICICI Bank has reduced exposure in their stressed sectors by Rs 20,000 crore as a matter of prudence.

According to the SBI Ecowrap report, some cash-rich companies are meanwhile helping out their stressed peers come out of the corporate debt restructuring (CDR), which is a long-term revival plan for stressed companies, thereby helping the overall debt and stress levels to come down.

Last month, cash-rich Piramal group invested Rs 257 crore in non-convertible debentures (NCDs) issued by Sanghi Industries. This helped the latter to successfully exit CDR after making repayment of all dues to CDR lenders ahead of schedule. Other companies such as Indo Count Industries, Haldia Petrochemicals and Ginni Filaments have also exited CDR, some of them before scheduled date. Ultratech, Piramal, promoters of Sun Pharma have been savior for some of them.

The top 10 business house debtors alone owe Rs 5 lakh crore to the banks, which will force them to sell their assets in the telecom, electricity, steel, and power sectors. repay the loans to the banks according to an analysis conducted by State Bank of India economic research wing.

Melwyn Rego, chairman and managing director, Bank of India, told reporters on Tuesday, after their quarterly results, “We are looking at having one time settlement with the companies where they will sell off non-core assets and repay the bank’s money.”

According to the SBI Ecowrap report, the Lanco group (debt reported to be around Rs 47,102 crore) completed the sale of its Udupi plant in 2015-16 for Rs 6,300 crore. While debt levels continue to rise, the group plans to sell power assets worth Rs 25,000 crore and retire debts of about Rs 18,000 crore. It is also planning to sell a one-third stake in the Australian coal mine it acquired in 2011 for $750 million.

More companies from high debt sectors such as power, infra, steel and real estate, will be forced to follow the path of big groups, and go for accelerated asset sale in the hope of staying afloat until better times return.

About 270 companies whose financial year ended in December 2015 reported decline in their debt levels by Rs 47,813 crore.

In 2015, several big companies such as ONGC, Grasim, Bajaj Holding, GMDC, MMTC, Lupin and DCM Shriram, apart from some pharma companies, managed to reduce their total debt levels, according to the report.

Inputs from DNA

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