Go for serious debt rejig, not to NCLT–Economic Times–29.11.2017

Depend upon it, Sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully. Many people know these words were uttered by lexicographer Samuel Johnson. Few are aware that he said this in reference to an extremely well-written plea for redemption by a William Dodd, who was sentenced to be hanged for the crime of not repaying a loan, after some people publicly doubted Dodd’s ability to be so articulate. At any rate, there is wonderful clarity of mind at many corporate headquarters staring at the prospect of being referred to the National Company Law Tribunal (NCLT) for resolution under the Insolvency and Bankruptcy Code. There is renewed interest in the possibility of restructuring debt, of a kind that was not evinced when banks had multiple such schemes, before the prospect of liquidation for not repaying loans had turned into harsh reality. This interest in serious debt restructuring is most welcome.

Bankers do not want to take an independent call on debt restructuring, after the arrest of top bankers on corruption charges. So, they need external validation for any restructuring package worked out: so, much of debt deemed unserviceable to be converted into equity in the lenders’ hands, sale of non-essential assets, fresh infusion of equity by promoters and possibly by the lenders themselves, lower interest and stretched out repayment. This external validation is to be supplied by at least two rating agencies. Since these ratings are for the outlook post-restructuring, it would be risky to release it to the public: they might be deceived into buying the company’s dud bonds. This arrangement has banking supervisor RBI’s approval. It would be most welcome if companies take advantage of this window for genuine restructuring and avoid being put into resolution. The point is to get the banks’ money back, not to expropriate India Inc. The restructuring package must be fair to the banks and viable. Otherwise, the scheme would unravel. For all his clarity and eloquence, William Dodd was hanged in the end.

This piece appeared as an editorial opinion in the print edition of The Economic Times.
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