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..............
Gammon India Limited
Gammon was amongst the largest physical infrastructure construction companies in India. The company undertook its maiden project almost 100 years back which included the pilling and civil foundation work for the iconic ‘Gateway of India’ in 1919. Over the next nine decades it achieved prominent presence in all sectors of civil engineering, design and construction (see Exhibit I). Gammon’s projects covered highways, public utilities, environmental engineering and marine structures and the design, financing, construction and operation of modern bridges, viaducts, and metro rail. (See Exhibit II for some of the landmark projects executed by Gammon)...............
Corporate Debt Restructuring
In the face of the financial stress and possible further defaults, Gammon decided to opt for the Corporate Debt Restructuring (CDR) mechanism in 2013. CDR was an exercise where lender banks came together to work out an easier deal for the financially stressed borrower. CDR was done through a properly coordinated plan in order to protect the interest of the company shareholders and the lenders.
“There are occasions when corporates find themselves in financial difficulties because of factors beyond their control and also due to certain internal reasons. For the revival of such corporates as well as for the safety of the money lent by the banks and financial institutions, timely support through restructuring of genuine cases is called for...............
Strategic Debt Restructuring
The Reserve Bank of India in June 2015 laid down the norms for Strategic Debt Restructuring (SDR), paving the way for the lender banks to convert their loans to equity with possible change in management. The conversion was to be done at the fair value taking into account the current market price and the book value. The norms stated that if borrower companies were not able to come out of stress due to operational/managerial inefficiencies despite substantial sacrifices made by the lending banks, change of ownership will be a preferred option................
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. ................
Exhibits
Exhibit I: Business Portfolio of Gammon India
Exhibit II: Landmark Projects Executed by Gammon India
Exhibit III: Summary of Financial Position of Gammon India (Consolidated)
Exhibit IV: Gammon’s On-Going Projects
Exhibit V: Progress of Cases Referred for CDR
Exhibit VI: Relative Performance of Share Price Movement of Gammon India
