More firms seeking sick status as slowdown bites

The year 2013 saw the highest number of firms, mainly small, registering with Board for Industrial and Financial Reconstruction for sick status since 2006

A total of 92 companies registered with BIFR in 2013, compared to 118 in 2006, according to data from BIFR. These companies include both listed and unlisted entities. Of the 92 firms in 2013, 28 were listed on the exchanges. Photo: Mint

Mumbai: A growing number of small companies in India are falling prey to the economic slowdown, forcing them to apply for sick status in order to protect themselves from creditors in case of liquidati.

A total of 92 companies registered with BIFR in 2013, compared to 118 in 2006, according to data from BIFR. These companies include both listed and unlisted entities. Of the 92 firms in 2013, 28 were listed on the exchanges.

The revenues of these companies are in the range of Rs.50 crore to Rs.300 crore, with the exception of four firms which have revenues of more than Rs.500 crore.

In order to be determined “sick”, a company’s accumulated losses should be equal to or more than its net worth, according to the criteria cited on BIFR’s website. The company should also have completed five years after incorporation and have 50 or more workers on any day of the 12 months preceding the end of the financial year with reference to which sickness is claimed, and have a factory licence. In fiscal year 2013, India grew at 5%—the lowest rate in a decade. With the coming general election adding to the climate of uncertainty, small firms have been feeling the heat more than larger ones.

“In any downturn the smaller companies face aggravated problems on both operational and funding fronts. Companies which are direct or indirect suppliers to larger companies are usually facing delay on payments from larger customers, thereby increasing their working capital needs,” said Deep Mukherjee, senior director, corporate ratings at India Ratings and Research Pvt. Ltd.

Some companies have tried all avenues to save their businesses. For instance, kidswear retailer Gini and Jony registered with BIFR in 2013. The company had applied for corporate debt restructuring in 2011, The Economic Times had reported citing its managing director Prakash Lakhani on 9 February 2011. In 2012, The Times of India newspaper cited Lakhani as saying the company was looking for private equity investors.

On Thursday Lakhani said via an e-mail that “the company has applied to BIFR only in order to adhere to statutory compliance and the corporate debt restructuring was approved, however could not be implemented completely”.

Avinash Gupta, head, financial advisory and senior director at the consultancy Deloitte Touche Tohmatsu India Pvt. Ltd, said, “Typically these (troubled) companies do not have a syndicate of banks and their discussions (with banks) are more bilateral in nature keeping in view the size, scope and sophistication,” he added.

To be sure, the Reserve Bank of India has in the past voiced its concern about commercial banks discriminating against small and marginal borrowers when considering debt restructuring. 

NITESH KUMAR SINGH

PGDM 2ND

SOURCE-- MINT LIVE NEWS