Corporate Debt Restructuring- a Study on Indian Iron & Steel Industry
In 2001, the RBI set up the corporate debt restructuring (CDR) mechanism as a voluntary mechanism to facilitate restructuring debts of viable corporates outside the normal insolvency law process. The main reason for such a sharp rise in CDR cases is the slowdown after 2008 that reduced margins while huge expansion in the years before the crisis made companies pile up debt. The Infrastructure sector accounts for the most number of cases followed by iron and steel sector. The Indian steel industry continued to showcase trends of higher consumption of finished steel and continued to be a net importer on account of increased demand for special grades of steel in the country. Prior to the economic crisis of 2008, several steel makers had taken huge debt exposure, due to good demand. In addition, the cost of raw materials had shot up in recent months due to the clamp on iron ore mining in several states. Now, raw material prices have gone up and the working capital requirement of steel companies have also gone up, putting pressure on margins. Higher interest rates have also affected the margins of steel producers.
In this background this research empirical study brings out an analysis of selected iron and steel companies performance of debt from financial year 2009 to 2013 based on selected financial variables and need for corporate debt restructuring mechanism was identified with the application of necessary statistical tools.
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By Abhishek Shanker and Rajesh Kumar Singh January 07, 2014
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