India Banks CDR meeting: No sign of improvement,
restructuring proposals remain high * Event * We met with the head of Corporate Debt Restructuring (CDR) to get a brief update on the restructuring pipeline. The CDR Head (Head of the Empowered Group Cell of CDR) admitted that stress in the system is not moderating and restructuring proposals are unlikely to ease meaningfully in the near term. * Impact * *Restructuring to continue at a furious pace: *Many sectors of the economy are witnessing cyclical pressure and there are policy / supply linkage related issues in infrastructure. Many companies are having problems as they have diversified into real estate. SEBs and other government agencies are delaying payments, which is having a cascading effect on corporate payments to banks and their suppliers. This is likely to keep stress in the system at an elevated level. The CDR restructuring pipeline remains high. Around 14 cases were referred to the CDR cell in the first two months of 2Q14, amounting to ~Rs220bn (1Q14 – Rs394bn and Rs311bn in 4Q13). Note that this doesn’t include bilateral restructuring that happens between a bank and corporate. The CDR restructuring comprised only 30% of the overall restructuring done in the last 2 years (Fig 7). *Several sectors under stress – key being metals and infrastructure:* * * Currently the sectors which are approaching the CDR include infrastructure (especially power and roads), construction and small/mid size iron & steel companies. On an outstanding basis (Jun’13), sectors such as Iron & steel (21%), Infrastructure (14%), Textiles (8%) and construction (5.7%) account for the majority of CDR cases. *Too early to say that INR depreciation will help sectors like textiles and* * * *metals: *These sectors are very cyclical and improvement depends on many factors like global/domestic demand, input cost and supply/linkage related issues etc. Projects under implementation are being restructured in the steel sector due to cost overruns and raw material supply related issues. In textiles at least, new cases are not being added due to lower cotton prices and the positive impact of rupee depreciation. *On the recent cases/exposures/banks – what is the update? *Big infrastructure groups like GMR, GVK, Essar, JPA etc have not yet approached the CDR cell for restructuring. One of the Lanco group companies, the Abhijeet Group companies (6 of them), and Bombay Rayon were referred to the CDR recently. Many Hyderabad based construction companies have been referred to the CDR. Almost all PSU banks have exposures to the companies that are referred to CDR. Among the private sector banks, HDFC Bank is virtually absent in most cases being referred. Axis, Dhanlaxmi, ICICI, ING Vysya and J&K Bank figure in many of the cases being referred to the CDR. * Outlook * *We maintain our cautious stance on the sector: *Incremental stress asset formation is likely to remain high in FY14. We maintain our near term cautious stance on the sector -- -- NIFTYVIEWS.COM NOW A FREE OPEN SOURCE WEBSITE. http://www.niftyviews.com/ Disclaimer :- "The opinions expressed by the members on this board are based on their individual experience and perceptions and to share information with other members with the best of intentions to help fellow members in investment decisions as equity investment is a risky venture.The administrator of www.Niftyviews.com just provide a platform for the authors to express their opinion and take no gurantee for the genuineness of the same." --- You received this message because you are subscribed to the Google Groups "TEAM STOCKRESEARCHERS" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. For more options, visit https://groups.google.com/groups/opt_out.
