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Strategic Debt Restructuring at Gammon India Limited*

CASE STUDY, ACCOUNTING, FINANCE AND CONTROL
ET Cases - GSMC, 11 Pages

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Strategic Debt Restructuring at Gammon India Limited

 

The year 2016 was still two months ahead but the city of Mumbai had already started its preparations to welcome the New Year. However members of the consortium of lender banks to Gammon India Limited (Gammon) were getting ready for an important meeting that was to decide the future of an iconic company. The meeting was to deliberate about converting the outstanding loans to Gammon into equity with change of management. Gammon was in the midst of a Corporate Debt Restructuring (CDR) exercise with the consortium since 2013. In terms of CDR, the consortium extended significant concessions to Gammon, however, the financial performance of the company failed to improve. The conversion of the outstanding loans to equity, if enforced, would make the consortium banks the majority shareholders in Gammon. The consortium was also expected to find a suitable buyer within a given time frame for the revival of the company. There was also a question as to what role the current management would be allowed to play to ensure that the progress of the ongoing project was not adversely affected. The consortium needed to balance the interest of all the stakeholders..............

Teaching Note Preview

Strategic Debt Restructuring at Gammon India Limited

 

Synopsis

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.

Pedagogical Objectives

  • • 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.

Assignment Questions

  • 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. .............

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Abstract

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.



Pedagogical Objectives

  • 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 the 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.


* GSMC 2016, IIM Raipur

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- Abstract
- Case Study
- Teaching Note (**ONLY for Academicians)
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