Strategic Debt Restructuring at Gammon India Limited
The case presents the issues involved in the Corporate Debt Restructuring (CDR) of a financially stressed company. The rationale and process for CDR and also the contributory factors for the success or failure of the CDR exercise are highlighted. A consortium of banks is convening a meeting to discuss the possibility of converting their loans to equity in Gammon India Limited (Gammon) with management change. Gammon, with almost 100 years of presence in the construction and infrastructure sector, was undergoing CDR exercise for the past two years. The consortium is proposing to invoke the provisions of Strategic Debt Restructuring (SDR) announced recently by the Reserve Bank of India. The exercise of SDR would lead to banks acquiring a majority stake in Gammon. The case discusses the considerations involved in the SDR decision.
- • To analyse the financial health of Gammon India Limited and identify the factors (internal and external) impacting the financial performance of the company.
- • To understand the rationale, structure and process of CDR and restrictions imposed by the creditors in case of CDR.
- • To understand the factors which contribute to the success or failure of CDR.
- • To analyse the provisions of SDR announced by the Reserve Bank of India and difficulties faced by the banks in invoking these provisions.
Case Positioning and Setting
This case can be used in the MBA, Executive MBA or Executive Development Programs in elective courses relating to Management of Banks and Risk Management in Bank on topics relating to credit risk. Alternatively, the case can also be used in Strategic Financial Management while discussing financing decision.
- I. Analyse the financial performance of Gammon India Limited and identify the key reasons (external and internal) for the decline in its financial performance.
- II. Why did Gammon India Limited make a reference to the CDR cell?
- III. Why did the lenders agree to make concessions as a part of CDR to Gammon India Limited?
- IV. .............