The financial creditors of stressed construction firms are likely to face high haircuts and smooth resolution still remains a far cry.
Kolkata: The resolution of stressed construction companies will involve more challenges than one and in the process, it may delay the entire process and reduce the realisable value considerably. As many as 202 construction entities had entered the resolution process of which 59 entities have either achieved resolution or ordered liquidation while the balance 143 entities are into the on-going process. With many construction companies, which were under financial stress having entered the Corporate Insolvency Resolution Process (CIRP) with a lag, the financial creditors are likely to face high haircuts and smooth resolution still remains a far cry, said Icra.
Going by a recent Icra Ratings report, a sample of 15 large companies which entered the resolution process where the financial creditors have made claims totalling Rs 1.3 lakh crore. Many of these large construction entities have either crossed the 270-day deadline or are close to the deadline but no resolution plan is in sight, which is likely to result in some of the companies being liquidated. The liquidation value of a construction company is expected to be very small (less than 10 per cent of the financial creditors) in most of the cases as construction companies do not have sizeable fixed assets and a large part of their borrowings comprise working capital debt. Some entities have got the resolution plan approved; however, the haircuts to the lenders in most of the cases have been significant.
"Timely initiation of the resolution process is critical for a construction company to realise maximum value for its creditors. Weak liquidity during the interim period could result in deterioration in operational performance, leading to cost overruns, termination of contracts, liquidated damages, penalties, invocation of bank guarantees etc., which will further increase the financial liability," said Shubham Jain, Senior Vice-President and Group-Head, Corporate Ratings, Icra.