Case Study -1

KSL & Industries Ltd.

Latest Happenings- Kingfisher CDR

On November25 2010, the Kingfisher board had approved a debt recast plan under which they would convert some of its debt into equity in its efforts to reduce the interest burden and stem losses. A consortium of 13 lenders to Kingfisher Airlines has taken a 23.37 percent stake in the airline as part of a debt restructuring deal. Kingfisher had agreed to convert Rs1,355 crores worth loan into shares

Latest Happenings- Other CDRs

Koutons has Nearly Rs660 crores Debt on its books out of which 460 crores will go for CDR. For Vishal mega mart R. 250 crore will be infused under the plan approved by the CDR committee.

On November25 2010, the Kingfisher board had approved a debt recast plan under which they would convert some of its debt into equity in its efforts to reduce the interest burden and stem losses. A consortium of 13 lenders to Kingfisher Airlines has taken a 23.37 percent stake in the airline as part of a debt restructuring deal.

Why CDR for KSLIL

Increasing in cost causing reduction in profits

Affecting the business volumes

Deficit in cash flow

Inadequate working capital

Reasons for deterioration of financial position

As explained before company had undertaken an expansion project in FY 2010 & 2011, however during the project implementation the textile industry underwent major change causing a major deviation in the assumptions envisaged during project appraisal & present scenario such as : Increase in cotton Cost 54% Increase in power cost 38% Increase in Labour cost - 35% Increase in yarn price 19% Increase in Knitted fabric cost 5% As can be seen there was a major increase in the cost but commensurate increase in the income was not reflected causing a significant gap in the profit envisaged & actual profits earned

Other Reasons for deterioration of financial position

Due to industry downturn delay in receipt of receivables Delay in receipt of TUFS subsidy
Changes industry dynamics - Past sustainable in prevailing circumstances profitability not

Cash flow Analysis

Particulars FY10 FY11 HFY-12 Total

EBIDTALessTax
NetCurrentAssets SuplusPostNCAbuiltup Capex SurplusafterCapex InterestObligation PrincipalObligation TotalDebtObligation Surplus/(deficit)post debtservicing

158
(20) 178 147 32 73 89 162

186
43 143 24 118 86 34 120

120
22 98 3 95 63 35 99

464
45 419 174 245 222 159 381

(130)

(2)

(4)

(136)

Management Initiatives & Business plan

Exhaustive restructuring plan is to be prepared to revive the operations & profitability .
Certain modifications and up gradation to the machineries to improve production and productivity, these will entail saving in labour cost & other overhead cost

Debt realignment proposal

1.

Term loans:

Repayable in 10 years No moratorium period available in order to comply with subsidy guidelines Interest to be charged at concessional rate of 10% Waiver of the unpaid penal & compound interest
2.

Working capital limits:

Working capital limit to be assessed based on FY13 numbers Reduced rate of interest @10% Reduction in working capital margins from earlier 25% to 10% LC & BG margins also reduced

Debt realignment proposal

3.

Funding of Interest:

Interest due upon the term loans & working capital loans to be converted into Funded interest term loan Repayable in 2 years starting from 30th June 2015 Interest on FITL to be charged @5%

4.

Foreign Currency convertible Bonds(FCCBs):

25% of the FCCB amount to be paid within 6 months of restructuring Reduced coupon rate @2% Yield to maturity of 4%

Debt realignment proposal

5.

Promoters Contribution:

Promoters to infuse fresh contribution to the extent of 15% of lenders sacrifice 50% of the same to be infused immediately & remaining within 6 months

Post debt restructuring scheme

Post approval of restructuring scheme and subject to timely availability of adequate working capital can generate decent Revenue and EBIDTA levels sufficient to meet the debt servicing requirements post restructuring.
FinancialYear
TotalRevenues EBIDTA EBIDTA%

FY12-H2
606 33 5.4%

FY13
1320 80 6.1%

FY14
1338 94 7.0%

FY15 onwards
1360 118 8.7%

Post debt restructuring scheme

The above projections are fully sensitized for further downside risks, so it is very much likely that after implementation of the package the company will able to restore its old shape. The restructuring package is expected to act as a breather for the company.

Current Affairs
In the past, there have been several

companies which have been referred to

CDR, few of them are as follows:
Subhiksha Retail Vishal Retail India cements Jindal Steel Essar Steel HPL

GTL Infra
Air India Wockhardt

Kingfisher Airlines
OnNovember252010,theKingfisher board had approved a debt recast plan under which they would convert some of its debt into equity in its efforts to reduce the interest burden and stem losses. Aconsortiumof13lenderstoKingfisherAirlineshastakena23.3 7percentstakeintheairlineaspartofadebtrestructuringdeal. KingfisherhadagreedtoconvertRs1,355croreworthloanintos hares InFusion of Rs648 Cr by the Promoters The Balance Debt Would be to the lenders over 9 years period with Moratarium Period of 2 years Reduction OF Interest Rates Sactional of Additional Funds

Analysis of the debt recast package

Action Taken 1.Conversion of loan into equity 2Conversion of loan into cumulative Redeemable preference shares Impact upon company Reduction of interest burden Reduces the interest burden, Dividend is payable to shareholders Only upon the generation of profits Company needs to pay dividend Distribution tax, loss of interest Deduction too Reduces the stress upon cash flow As there will be no repayment liability For2years

3.Moratorium period of two years

ActionTaken 4.Conversion of un serviced portion Of interest in to term loan 5.Reduction in Rate of interest

Impactuponcompany Reduces the penal interest liability Reduces the cash outflow in Terms of interest Will help the company to manage Its operational expenses till the Time it gets stabilised Thelimitwillnotbeaffectedby thenetworkingcapitalofthe companyitwillbeintactinspiteof thereductioninnetworking capital

6.Additional limits sanctioned

7.Working capital limit converted intoWorkingcapitaltermloan

Koutons has Nearly Rs660 crores Debt on its books out of which 460 crores will go for CDR.

For Vishal me`ga mart R. 250 crore will be infused under the plan approved by the CDR co`mmittee.

Suzlon Energy
It is a wind Power Company It is 13700 Crs Debt Ridden as follows SBI - 3610 Cr IDBI-2008 Cr BOB- 970 Cr IOB - 952 Cr Others -6160 Cr

 The Restructing Proposed as follows Promoter to Infuse 250 Cr USD 206 million (or about Rs1,100 crore) from Edison, a US-based customer of the company. Reduce Fixed expenditure By 300 Cr and 2800 Cr by Disinvestment Fresh Credit