Delving deep and designing unconventional …..
The client’s challenge:
A four decades old, prominent public sector fertilizers and chemicals manufacturing company, in the red for the first time since its inception, continued to suffer losses for subsequent period of three years, mainly due to:
- Revision in the pricing norms for regulated fertilizers;
- Higher feedstock prices;
- Huge recovery of past subsidies; and
- Market constraints.
There were grim hopes of any financial turnaround considering the gravity of the situation, which worsened due to:
- Cash flow deficit arising out of losses reaching to a peak of about INR 4Bn on an outstanding debt level of ~ Rs. INR 15Bn;
- Corrective measures constrained due to fiscal constraints at Sponsors level.
- Sponsors contemplating divestment in the face of adverse industry macro variables, and mounting debt burden and deteriorating financial position; and
- Lenders in favour of liquidating assets to salvage value.
- Pursuant to a deep analysis, Brescon was convinced about the substantial intrinsic potential of the company that was reflected in still intact strong brand image, large asset base, complimentary product range, potential margins and latent market opportunities. Brescon undertook one of the most complex stressed assets turnaround transactions and strategized an innovative solution, which besides the conventional “workout”, inter alia various reliefs, included:
- Staggered recapitalization through tax deferment over 5 years that helped liquidity reinforcement.
- Devising a Risk Return Matrix that provided the lenders ( > 45 nos), with three different repayment options i.e. debt payoff in 1.5 years, 5 years and 12 years respectively, at differential interest rates to meet their varying risk appetite.
- During the engagement that spanned over eight months, Brescon identified the challenges at each stage and guided all aspects of the transaction to address the concerns of the management, lenders, shareholders, Government, workers and tax authorities and charted a roadmap to recovery.
- Brescon’s creative solution, comprising of liquidity retention as against fresh liability encumbrance, risk appetite driven debt redemption for secured lenders and normative reliefs of repayment holiday and interest rate rationalisation combined with the management’s relentless focus on results aided by favourable market conditions, helped the company in making one of the fastest turnarounds in corporate history.
- With benchmarked and improved financials, the entire debt was refinanced within a period of 2 years, again, Brescon being the advisor and arranger.
- Within just 3 years, comprehensive restructuring paved the way for a faster turnaround resulting in the company earning a profit of ~ INR 3Bn as against loss of INR 4Bn. This increased the shareholders’ wealth by more than 150 %.
- The above followed facilitating the company’s exit from the Corporate Debt Restructuring (CDR) mechanism within a period of 3 years, the first ever and fastest exit in CDR’s history.