Coronavirus will hit IBC realisations by 30-40% as government suspends new proceedings
Jun 4, 2020, 09:41 IST
The outbreak of Covid-19 pandemic and the suspension of new proceedings under the Insolvency and Bankruptcy Code (IBC) is expected to result in significantly lower realisations, by 30-40 per cent for the financial creditors in FY20-21 and pose new challenges.
Ratings agency, ICRA expects the resolution of corporate insolvency resolution proceedings (CIRPs) would be impacted during FY2021 due to a decline in the number of CIRPs yielding a resolution plan as well as an increase in haircuts that lenders would have to take.
The financial creditors could realise about Rs 600 - 700 billion in FY2021 through successful resolution plans from the IBC as compared to about Rs 1,000 billion realised in FY2020.
On the other hand, says ICRA, suspension of fresh insolvency proceedings for a period of one year would ensure relief for the companies that are severely impacted by the Covid-19 pandemic and are unable to meet payments to their creditors.
Realisations for financial creditors in FY2022 could be even lower due to the suspension of fresh insolvency proceedings for one-year period, it said.
In the current fiscal, successful resolution of a large housing finance company is going to be the key determinant of the extent of amount the financial creditors would realise during the year.
The ratings agency further notes that realisations from resolution plans could further suffer in FY2022 as fresh insolvency proceedings have been suspended for one-year period. New insolvency proceedings initiated in FY2022 are unlikely to get resolved in the same fiscal, given the typical average time period seen for CIRPs to conclude with a resolution plan is quite high.
Commenting on the lower realisations from IBC, Abhishek Dafria, Vice President, ICRA, says, "The pandemic has thrown up new operational challenges for the various parties involved in a resolution process, this could result in limited cases yielding a resolution plan, especially in Q1 FY2021".
"In the current environment, the on-going and even future CIRPs are likely to suffer from lower valuations and possible lesser interest from bidders due to the uncertainty across many sectors. This in turn may result in creditors having to agree on higher haircuts," he added.
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Ratings agency, ICRA expects the resolution of corporate insolvency resolution proceedings (CIRPs) would be impacted during FY2021 due to a decline in the number of CIRPs yielding a resolution plan as well as an increase in haircuts that lenders would have to take.
The financial creditors could realise about Rs 600 - 700 billion in FY2021 through successful resolution plans from the IBC as compared to about Rs 1,000 billion realised in FY2020.
On the other hand, says ICRA, suspension of fresh insolvency proceedings for a period of one year would ensure relief for the companies that are severely impacted by the Covid-19 pandemic and are unable to meet payments to their creditors.
Realisations for financial creditors in FY2022 could be even lower due to the suspension of fresh insolvency proceedings for one-year period, it said.
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The ratings agency further notes that realisations from resolution plans could further suffer in FY2022 as fresh insolvency proceedings have been suspended for one-year period. New insolvency proceedings initiated in FY2022 are unlikely to get resolved in the same fiscal, given the typical average time period seen for CIRPs to conclude with a resolution plan is quite high.
Commenting on the lower realisations from IBC, Abhishek Dafria, Vice President, ICRA, says, "The pandemic has thrown up new operational challenges for the various parties involved in a resolution process, this could result in limited cases yielding a resolution plan, especially in Q1 FY2021".
"In the current environment, the on-going and even future CIRPs are likely to suffer from lower valuations and possible lesser interest from bidders due to the uncertainty across many sectors. This in turn may result in creditors having to agree on higher haircuts," he added.
SEE ALSO:
GVK Group announces salary cuts up to 30% from May amid coronavirus pandemic
Zoomcar CEO is betting on people not taking Uber and Ola— and not buying cars in a hurry
China responds to Modi-Trump conversation — ‘there is no need for any third party to intervene’