The client’s challenge:
One of the major agro-chemical players in the country, met with a major fire break-out at its main factory, causing heavy production losses. The event only fuelled the crisis already caused by the industry downturn, post FY 08global meltdown, resulting in the fall in revenues by over 35%. High level of debtor receivables in the company’s European subsidiaries further strained its liquidity position. The company was also combating certain statutory issues of non-compliance. Depletion of current assets, lack of adequate working capital, declining operational cash flows, inability to execute new orders besides continued debt servicing led the company being caught in a vicious liquidity trap.
Company’s debt was initially restructured by the lenders, albeit with delays, which allowed for temporary working capital term loans (WCTL) to be squared off against asset monetisation, without providing for reassessed working capital. However, due to inadequacy of the ‘Work out’, Company was still reeling under liquidity stress and Brescon continued to persuade the lenders for an optimal solution, second time around.
In the process, Brescon proposed a comprehensive resolution which was approved after lenders’ concerns about balance sheet related issues and NPA status reversal within short term possible were constructively addressed. With the largest lender not in concurrence, other lenders’ support was sought to take the proposal to CDR forum. Even then, financing of the re-assessed working capital limits, was not considered by the lenders due to provisioning related issues. Management mooted the idea of addressing working capital deficit through long-term revolving credit from one of the company’s largest customers. Brescon creatively used the same to ward off the resistance of all the lenders to stall the approval of the package. As the resolution process progressed, post acceptance, the implementation of the package was subsequently in jeopardy due to concerns raised by the largest lender in the company’s overseas subsidiary’s deteriorating health. This was in the context of corporate guarantee issued by the parent company to foreign subsidiary. To address the issue, Brescon conceptualised and built case for the bank to de-risk itself through early debt redemption. It also, consequently, proposed debt settlement, facilitated the lender’s exit, and saved further provisioning on the balance sheet of that lender. Facilitated the company indirect benefit of saving on Right of Recompense.
Brescon stayed committed to helping the company to achieve a turnaround for over 5 years. Apart from two rounds of restructurings, first: bilateral and second: under CDR forum, it conceptualised and assisted the company in securing permission to convert long-term overseas receivables into equity, thereby enabling it to comply with the statutory regulations. Restructuring of the overseas subsidiary, at the same time, shielded the Indian parent company against the adverse effects of the subsidiary’s defaults.
The company continues to register a marked improvement in its performance over the years and has created value for its shareholders by 3x, post restructuring. For the lenders, the turnaround has resulted in write back of provisions, adding to their bottom line.