“Emerging Opportunities in Corporate Finance“

Various provisions of CDR Scheme

Amar MainkarAGM, CDR Cell

December 1, 2012

OBJECTIVES

To ensure timely & transparent mechanism for restructuring debts of viable corporate entities facing problems, for the benefit of all concerned.

To aim at preserving viable corporates that are affected by certain internal and external factors

To minimize the losses to creditors and other stakeholders through an orderly and coordinated restructuring programme.

Legal Basis

CDR is a voluntary system based on Debtor Creditor Agreement (DCA) and Inter Creditor Agreement (ICA). DCA & ICA provide the legal basis to the CDR Mechanism

CDR Set Up

Standing Forum

Core Group

Empowered Group

CDR Cell

Standing Forum•Representative body of all CDR member FIs, Banks •Self empowered body•Comprises Chairman/ CMDs of all member institutions •Lays down policies and guidelines• Monitors progress of CDR

Core Group• Small group carved out of Standing Forum• Comprises Chairmen/ CMDs of IDBI, SBI, ICICI

Bank, PNB, BOI, BOB, Chairman, IBA & Dy Chairman, IBA (Representing Foreign Banks)

• Assists Standing Forum in formulating policies• Addresses operational difficulties of CDR

Empowered Group• Lays down guidelines for workouts

CDR Empowered Group

•ED level representatives of IDBI, SBI, ICICI Bank as standing members•Senior Executives of FIs, banks with exposure in concerned company•Executives attending EG meetings should have general authority from their Boards to take decisions

CDR Cell

•Formats for Flash/Final Report, all CDR and RBI Circulars, Statistical Data etc.•Assisting CDR Standing Forum/ Core Group/ Empowered Group•Making initial scrutiny of proposals. Especially viability of the case and adherence of RBI guidelines.• Placing proposals for consideration of EG

Admission Criterion

Loan assets with an aggregate debt outstanding ( inclusive of non fund limits) of Rs 10 crore and above and involving at least two lenders.

The case may be referred by a lender with exposure of minimum 20% by value. A corporate can also refer its case with letter of support from a lender or lenders with exposure of 20% by value.

Reference of any account / case to CDR Cell is asset classification neutral. Asset of any class can be admitted subject to certain specific stipulations.

Other stipulations regarding minimum margin from the Promoters, Personal Guarantee of Promoters, Pledge of promoters holding etc have to be observed.

Admission Criterion (contd)

Cases of fraud and misfeasance are ineligible.

Cases of willful default may be considered if permitted by Core Group depending on case specifics.

BIFR cases are eligible subject to approval of Core Group and with certain additional conditions.

Decision process

Decisions in the CDR system are taken on basis of super majority where 75% of lenders by value and 60% of lenders by number have to agree.

Stand-still PeriodLenders & borrowers not to initiate or proceed with civil suitNot to approach any authority for any relief Directors not to resign.Documents stand extended.Handholding operations to be extendedStatus quo ante for asset classification if package approved & implemented within 120 Days.

Outline of the Process• Submission of Flash Report – scrutiny to ensure benchmarks and admission of the case by Empowered Group.• Appointment of Monitoring Institution (MI) & members of Monitoring Committee (MC)• Conduct of Joint Lenders Meet (JLM) for finalization of Restructuring Package• Approval of Final Restructuring Package by EG.• Execution of Master Restructuring Agreement & Trust & Retention Agreement.

Components of Restructured packages

Within overall regulatory guidelines applicable, each package is tailor made to suit the corporate needs. Generally the package may involve certain concessions in rate of interest, carving out irregular portion by giving Working Capital Term Loan ( WCTL) , granting of Funded Interest Term Loan (FITL), conversion of debt to equity or other debt instruments.

Additional Finance• Additional Finance, if any, to be provided by CDR lenders or all lenders on pro rata basis.• Preferential claim with respect to cash flows in respect of additional exposures.•Waterfall Mechanism is embedded in the MRA and TRA•Asset classification benefits for additional exposures as per extant regulatory guidelines. •Sharing additional finance compulsory only in Category I cases.

TimelineInitial scrutiny for Flash Report max 30 days

Approval of Flash : Next EG Meeting.

Approval of Final Package 60/ 90 days

Issue of LOA: After confirmation of minutes

Approval by individual lenders : 45 days Package Implementation by all : 120 days

Key Financial Benchmarks

DSCR - 1.25:1

Return on Capital Employed – 5 year G sec + 2%

Gap between IRR and cost of capital – at least 1%

Loan Life Ratio – 1.40

Break-even analysis – in line with industry

Industry indicators – EBIDTA, price realization,etc

Monitoring & Follow up

CDR Cell ensures regular conduct of meetings of MC and follows up on compliance of various aspects of Restructuring Package approved and also the operational and financial performance of the corporate vis-à-vis the projections. MC is a recommendatory body and decisions are made by CDR EG.

Exit from CDR

Exit from CDR is possible either due to non compliance / non adherence to the package, external/ industry level factors affecting the package implementation, improved performance of the corporate, merger with larger entity or for any other reason like OTSUpon Exit, Recompense clause would be triggered in certain cases. The sacrifices made by the CDR lenders would have to be recompensed by the corporate.

Recent Developments………….Mahapatra Committee Recommendations – July 2012• No IRAC protection after 2 years• Increased provisioning on standard assets•Reduction in timelines for viability•Definition of specified period•Change in promoter contribution•Debt to equity swaps•Personal guarantee mandatory

Major industry-wise classification of CDR approved cases

Industry No of cases

Aggregate Debt

( Rs in Crores)

% share

Iron & Steel 34 39714 23.57

Textiles 60 12090 7.18

Fertilizers 8 8454 5.02

Construction 2 8762 5.20

Sugar 26 6733 4.00

Telecom 10 9886 5.87

Infrastructure 14 17490 10.38

NBFC 7 7247 4.30

Cement 11 6595 3.91

Achievements till date

Sr. No.

Proposals No.of cases

Total Debt

(Rs. Crore)

1 Referred 433 227021

2 Approved 309 168472

3 Rejected 63 21377

4 Under Process 61 37172

Current Status of Package Implementation

Sr.no Status of implementation

No. of cases Debt involved

(Rs. crore)

1 Fully implemented

154 94813

2 Under Implementation

28 21180

Total Cases 182 115993

Packages by size of debt ( Rs in Crores)

Sr. No. Size of debt No. of Cases Debt involved

Avg. Size

1 Up to 50 45 1481 33

2 51 to 100 53 4225 80

3 101 to 500 144 33321 231

4 501 to 1000 28 20377 728

5 1001 to 1500 17 19642 1155

6 Above 1500 22 89426 4065

Total 309 168472 545

Further information……

CDR Cell maintains a web site, www.cdrindia.org which can be visited for circulars, downloads and regular updates.

Speakers Contact Details

Amar MainkarAsst General Manager

Corporate Debt Restructuring19th floor, IDBI TowerWorld Trade Complex

Cuffe Parade, Mumbai 400 005

Phone : 32941088, 66552477E Mail : cdr.amarmainkar@idbi.co.in

Thank you