With R6,492 crore of fresh cases being referred to the Corporate Debt Restructuring (CDR) cell in September so far, it looks as though the restructuring has still not bottomed out—and this is after the government stepped in to bail out state electricity boards. While the worsening CDR position is, not surprisingly, coinciding with the lowering of economic growth and the worsening investment climate, the solution is not really that complex. As HDFC Bank managing director Aditya Puri has pointed out in a Q&A on the opposite page, were equity holders to take a big haircut and the project were to be sold to someone else, it would actually offer a good return.
Take the Delhi-Gurgaon expressway, in the news a lot nowadays since the NHAI chief is in favour of terminating the concession while the concessionaire is fighting this in court. Some months ago, IDFC was planning to buy 74% of the project’s equity of R300 crore for a token one rupee while taking on all debt obligations. Since the project would have had no equity, or very little equity, to service, this means the returns on it would automatically become very high. The next phase of India’s investment cycle will get a big boost if banks were to turn the screws on CDR/NPA cases and force distress sales. So far, with few assets being sold at bargain-basement rates, we’re wasting a perfectly good crisis.