Debt Restructuring

Debt restructuring is a method used by companies with outstanding debt obligations to

alter the terms of the debt agreements in order to achieve some advantage. Companies
use debt restructuring to avoid default on existing debt or to take advantage of a
lower interest rate. A company will often issue callable bonds to allow them to readily
restructure debt in the future. The existing debt is called and then replaced with new debt
at a lower interest rate. Companies can also restructure their debt by altering the terms
and provisions of the existing debt issue

There can be many benefits to Debt Restructuring including renegotiating the terms of
the debt agreements in order to achieve a mutual benefit between the business and its
creditors. Working with a professional debt restructuring agent, such as Corporate
Turnaround, offers your business specific benefits including help with:

 Satisfying creditors based on what you can afford

 Paying down as little as 2% of your total debts each month
 Reducing your debt and stretching it out over time
 Converting overwhelming debt obligations into manageable and affordable
monthly payments
 Spending less time dealing with creditors, collection agencies and attorneys where
your debt restructuring agent handles negotiations with applicable relationships
 Reducing or eliminating associated legal costs
 Balancing your budget and managing your cash flow
 Rebuilding your credit and credibility
 Keeping your doors open and avoiding bankruptcy
 Subhiksha

In the year 1997, Subhiksha opened its first store at Thiruvanmiyoor in Chennai with an
investment of around Rs 4-5 lakh, with the theme,” why pay more when you can get it for
less at Subhiksha”

Subhiksha’s USP :

Offering the branded goods at a lower price than their competitors Which couldmake
them stand in the competitive retail industry.

Subhiksha’s turnover grew from Rs 330 crore in 2005-06 to Rs 833 crore in 2006-07, and
then to Rs 2,305 crore in 2007-08 (year ending March 31, 2008). Likewise, having grown
from 150 stores in September, 2006 in Tamilnadu to 1,600-odd stores across the country
in September, 2008, Subhiksha has been the envy of its competitors. By the end of this
year, it was looking at grossing a turnover of Rs 4,300 crore from 2,300 stores.

"We were facing a lot of difficulty in accessing data across different regions using this
local solution," concurs Ankur Saigal, vice president (Tech Initiative), Subhiksha Trading
Services. "Besides business expansion brings its own complexities and we needed a
robust platform to streamline our operations and control."

Furthermore, the company needed a solution to manage the payroll system. Although it
didn't have any HR issues at the ground level, sending the payroll to employees on time
was getting difficult. The system worked manually, with a central team taking care of
running 2-3 payroll systems in a month depending on the availability of the band width
and the entire process

The first and big mistake committed by the management of Subhiksha is expanding the
number of stores rapidly without sufficient funds in hand. They thought of raising equity
during last September but the things had gone too far before they woke up. The global
markets had started collapsing and there were no possible chances of raising funds
 1. Subhiksha Trading Services has come under fire from television channels for not
clearing advertising dues that run around Rs 8 crore.

2. Subhiksha is believed to owe Rs 35 crore against goods, Rs 18 crore against

wages, and Rs 20 crore against lease rents. The company, according to the report,
is also carrying a debt of Rs 700 crore at an average interest cost of 12 per cent per
annum.

3. Expansion of Stores without adequate system control and IT Support. That’s why
there was a huge Audit and abnormal losses in the system

Recovery:

Subhiksha, which was forced to shut all its stores as it ran out of cash, is in talks with
over ten banks to restructure loans of nearly Rs 750 crore through a CDR (corporate debt
restructuring) exercise. Its promoter R Subramanian has said that the company can
resume operations after it gets cash of Rs 300 crore.

In all, 13 banks have cumulatively lent Rs 750 crore to the company. The banks that are
part of the restructuring include ABN AMRO Bank (Rs 50 crore), Bank of Baroda (Rs75
crore), Centurion Bank of Punjab (Rs 40 crore), Development Credit Bank (Rs 25 crore),
Federal Bank (Rs 50 crore), HDFC Bank (Rs 65 crore), ICICI Bank (Rs 155 crore),
Standard Chartered Bank (Rs 25 crore), The Hongkong and Shanghai Banking
Corporation (Rs 85 crore) and Yes Bank (Rs 50 crore)
 Cholamandalam DBS Finance Limited (CDFL)

Cholamandalam DBS is a pan-Indian, composite financial services provider. It comprises

the parent company, Cholamandalam DBS Finance Limited (CDFL), and its subsidiaries
and associates DBS Cholamandalam Distribution Limited, DBS Cholamandalam
Securities Limited. The shares of CDFL are listed in the Madras (MSE), Mumbai (BSE)
and National (NSE) Stock Exchanges.

Cholamandalam Investment & Finance Company Limited (CIFCL) was incorporated in

1978 as the financial services arm of the Murugappa Group. In 2005, post the joint
venture partnership between the Murugappa Group and DBS Bank Limited, Singapore,
the Company was renamed as Cholamandalam DBS Finance Limited (CDFL). The
Company that commenced business as an equipment financing company has now
emerged as a comprehensive financial services solution provider that offers vehicle
finance, business finance, home equity loans, mutual funds, stock broking and
distribution of financial products to its customers. The Company operates from over 140
branches across India with an asset under management of about Rs.8546 Crores. The
subsidiaries of Cholamandalam DBS include DBS Cholamandalam Securities Limited
(DCsec) and DBS Cholamandalam Distribution Limited (DCDL).

The major issues prevailed in Cholamandalam DBS Finance Ltd are Poor liquidity,
Increase in cost of funds, Reduction in the volume of business, Reduction in corporate
mortgage finance portfolio and Challenging economic environment.

Need for capital restructuring: Net loss of Rs.27.73 crores for the three months ended
December 31, 2008 as compared to the net profit of Rs. 20.25 Cr last year. Along with
this it had ti infuse equity (Rs.300 Cr). More over CRISIL ratings had gone down from
FAA+ to FAA. Profit before tax (PBT) had gone down compared to 2008 which lead to
drop in earnings per share (EPS). Dividend was not paid for the year 2008 financial year.
There was drop in the capital adequacy ratio from 15% to 12%.
The approval procedure: Cholamandalam followed the formalities for capital
restructuring. For this it got approval from Shareholders on March 5, 2009. Then later it
got approval on 20th April under section 78,100 to103 of “The Companies act”,1956.
Finally the bank had gone restructured on May 11, 2009.

The changes: The changes that happened due to capital restructuring are

1. Capital Reduction - The special provision of Rs. 323.53 Cr is made

a) To make provision for the standard assets, for an amount not exceeding Rs.
200Cr.

b) To write off the bad debts/loan losses/other non recoverable assets, for an
amount not exceeding Rs. 100 Cr.

c) Provision for the doubtful receivables, for an amount not exceeding Rs. 23.53
Cr.

2. Infuse a capital of Rs. 300 Cr, in the form of fully convertible cumulative
preference shares.

3. The bank exited from personal loan business. The bank concentrated more on
vehicle financing, home equity, corporate mortgage.

The company could get back to normal disbursement in the last quarter of the financial
result. The liquidity position has substantially improved. In near future bank can improve
the credit rating and can come back to its original rating ie., before debt restructuring
occurred. The bank can constantly enhance shareholders’ value. In future profitability
will be increasing along with the earnings per share value.
 Hindalco

Hindalco Industries is India's largest Aluminum manufacturing Company and is a

subsidiary of the Aditya Birla Group. It is run by one of the world's youngest billionaires,
Mr. K.M. Birla. The company has annual sales of $ 5 billion and employs 13,675 people
and is listed on Forbes 2000. A metals powerhouse with a turnover of US$ 14 billion,
Hindalco is the world's largest aluminium rolling company and one of the biggest
producers of primary aluminium in Asia.

Hindalco Industries' shares slipped 3.06%,during February 2009. Hindalco had acquired
Canadian aluminium product maker Novelis for $5.9 billion in 2007 in an all-cash
transaction, which also included a debt of $2.4 billion.

The company also had plans to invest Rs 14,800 crore in brownfield and greenfield
expansions, which it proposes to fund through debt and inter-nal accruals.

“Credit to the business reconstruction reserve account shall not exceed the balance lying
to the credit of the securities premium account of the company as on December 31,
2008,” Hindalco said.

Hindalco has $1.8 billion in its share premium reserve. The aforesaid exercise will be
implemented under relevant provisions of the Companies Act, 1956 and other laws.

LME Aluminium prices have averaged $1,828/tonne, lower by 25% year-on-year during
the quarter. However, prices corrected significantly in December and January 2008,
which will reflect in lower realisations for Hindalco, going forward.
 Tata Motors

Tata Motors Limited is a multinational corporation headquartered in Mumbai, India.

Part of the Tata Group, it was formerly known as TELCO (TATA Engineering and
Locomotive Company). Tata Motors has consolidated revenue of USD 16 billion after
the acquisition of British automotive brands Jaguar and Land Rover in 2008.

It is India's largest company in the automobile and commercial vehicle sector with
upwards of 70% cumulative Market share in the Domestic Commercial vehicle
segment, and a midsized player on the world market with 0.81% market share in 2007
according to OICA data. The OICA ranked it as the 19th largest automaker,[1] based on
figures for 2007.[2] and the second largest manufacturer of commercial vehicles in the
world. The company is the world’s fourth largest truck manufacturer, and the world’s
second largest bus manufacturer. In India, Tata ranks as the leader in every commercial
vehicle segment, and is in the top 3 makers of passenger cars. Tata Motors is also the
designer and manufacturer of the iconic Tata Nano, which at INR 100,000 or
approximately USD 2300, is the cheapest car in the world.

Established in 1945, when the company began manufacturing locomotives, the

company manufactured its first commercial vehicle in 1954 in collaboration with
Daimler-Benz AG, which ended in 1969.[3] Tata Motors is a dual-listed company
traded on both the Bombay Stock Exchange, as well as on the New York Stock
Exchange. Tata Motors in 2005, was ranked among the top 10 corporations in India
with an annual revenue exceeding INR 320 billion.

In 2003, it was newly rechristened Tata Motors has decided to utilise the entire $100
million it raised through the issue of foreign currency convertible bonds last month to
retire its high-cost debts. With this move, the company hoped to retire at least Rs 400-
500 crore (Rs 4-5 billion) of its expensive debt.

The automobile maker was earlier contemplating utilising the funds for capital
infusion, product development and retiring high-cost debts but has finally decided on
using the entire amount for debt restructuring.

Praveen Kadle, executive director, Tata Motors, said that they utilised the $100
million raised through the FCCB issue to bring down the effective yield of our high-
cost debt component to 4 per cent, while the average cost of our debt at present is
around 12-13 per cent."

The company managed to bring down its loans, both secured and unsecured, from Rs
2,304.96 crore (Rs 23.05 billion) to Rs 1,458.31 crore (Rs 14.58 billion) in the last
fiscal. It also managed to retire Rs 150 crore (Rs 1.50 billion) of high-cost loans in the
first quarter of this year through internal accruals.

Besides pruning its debt portfolio, the company had a number of other plans lined up
for that year. Two new cars from the Tata Motors stable -- Indigo Estate and Indica
Sport -- hit the roads in the last quarter of the year 2003. The company also launched a
petrol version of its popular utility vehicle Tata Safari.