FINANCIAL FINANCIAL RESTRUCTURING.RESTRUCTURING.

PREPARED BY :PREPARED BY :

NAVEEN KUMAR & TARUN NAVEEN KUMAR & TARUN VENAIVENAI..

Meaning of Financial Meaning of Financial Restructuring.Restructuring. The term “ Financial The term “ Financial

restructuring ” is the process of restructuring ” is the process of reshuffling or reorganizing the reshuffling or reorganizing the financial structure, which financial structure, which primarily comprises of equity primarily comprises of equity capital and debt capital. capital and debt capital. Financial restructuring can be Financial restructuring can be done because of either done because of either compulsion or as part of the compulsion or as part of the financial strategy of the financial strategy of the companycompany..

For example :For example :

Kingfisher Airlines' losses in Q3, Kingfisher Airlines' losses in Q3, taking the total loss to $240 taking the total loss to $240 million previous year, as the million previous year, as the ailing Indian carrier was ailing Indian carrier was squeezed by high fuel costs, a squeezed by high fuel costs, a weaker rupee and competition.weaker rupee and competition.

Current market price is 19.95 as Current market price is 19.95 as per BSE and 20.05 as per NSE per BSE and 20.05 as per NSE till on 14 march,2012 by latest.till on 14 march,2012 by latest.

Kingfisher Airlines has opted to Kingfisher Airlines has opted to do Financial restructure to cover do Financial restructure to cover their loss margin.their loss margin.

Continued…Continued…

Financial restructuring is the Financial restructuring is the reorganization of the financial reorganization of the financial assets and liabilities of a assets and liabilities of a corporationcorporation in order to create the in order to create the most beneficial most beneficial financial financial environment environment for the company.for the company.

The process of financial The process of financial restructuring is often associated restructuring is often associated with corporate restructuring, in with corporate restructuring, in that restructuring the general that restructuring the general function and composition of the function and composition of the company is likely to impact the company is likely to impact the financial health of the corporation.financial health of the corporation.

Why financial Why financial Restructuring ?Restructuring ?

Financial Restructuring is done for Financial Restructuring is done for various business reasons and various business reasons and those could be….those could be….

Poor financial performancePoor financial performance External competitionExternal competition Erosion (loss) of market shareErosion (loss) of market share Emerging market opportunitiesEmerging market opportunities

Components of Financial Components of Financial Restructuring.Restructuring.

1.1. The financial restructuring can The financial restructuring can be either from the assets side be either from the assets side or the liabilities side of the or the liabilities side of the balance sheet. If one is balance sheet. If one is changed, accordingly the other changed, accordingly the other will be adjusted.will be adjusted.

2.2. The two components of The two components of financial restructuring are :financial restructuring are :

Debt Restructuring.Debt Restructuring. Equity Restructuring.Equity Restructuring.

Debt restructuring.Debt restructuring. Debt restructuring is the process of Debt restructuring is the process of

reorganizing the whole debt capital reorganizing the whole debt capital of the company. It involves of the company. It involves reshuffling of the balance sheet reshuffling of the balance sheet items as it contains the debt items as it contains the debt obligations of the company.obligations of the company.

A company’s financial manager A company’s financial manager needs to always look at the options needs to always look at the options to minimize the cost of capital and to minimize the cost of capital and improving the efficiency of the improving the efficiency of the company as a whole which will in company as a whole which will in turn call for the continuous review turn call for the continuous review of the debt part and recycling it to of the debt part and recycling it to maximize efficiency.maximize efficiency.

Components of debt Components of debt restructuring.restructuring.

Restructuring of secured Restructuring of secured long-term borrowings :long-term borrowings :

Restructuring of secured long-Restructuring of secured long-term borrowings will be done for term borrowings will be done for the following reasons such asthe following reasons such as

reducing the cost of capital for reducing the cost of capital for healthy companies.healthy companies.

for improving liquidity and for improving liquidity and increasing the cash flows for a increasing the cash flows for a sick company.sick company.

Restructuring of unsecured Restructuring of unsecured long-term borrowings long-term borrowings ::

Restructuring of the long-term Restructuring of the long-term unsecured borrowings will be unsecured borrowings will be done depending on the type of done depending on the type of borrowing. These borrowings borrowing. These borrowings can be public deposits, private can be public deposits, private loans (unsecured) and privately loans (unsecured) and privately placed, unsecured bonds or placed, unsecured bonds or debentures.debentures.

Restructuring of secured Restructuring of secured working capital borrowings working capital borrowings ::

Credit limits from commercial Credit limits from commercial banks, demand loans, overdraft banks, demand loans, overdraft facilities, bill discounting and facilities, bill discounting and commercial paper fall under the commercial paper fall under the working capital borrowings. All working capital borrowings. All these are secured by the charge on these are secured by the charge on inventory and book debts and also inventory and book debts and also on the charge on other assets.on the charge on other assets.

The restructuring of the secured The restructuring of the secured working capital borrowings is working capital borrowings is almost all the same as in case of almost all the same as in case of term loans.term loans.

Restructuring of other short Restructuring of other short term borrowings term borrowings ::

The borrowings that are very The borrowings that are very short in nature are generally not short in nature are generally not restructured. These can indeed restructured. These can indeed be renegotiated with new terms. be renegotiated with new terms. These types of short-term These types of short-term borrowings include inter-borrowings include inter-corporate deposits, clean bills corporate deposits, clean bills and clean over drafts.and clean over drafts.

Equity restructuringEquity restructuring..

Equity restructuring is the Equity restructuring is the process of reorganizing the process of reorganizing the equity capital. It includes equity capital. It includes reshuffling of the shareholders reshuffling of the shareholders capital and the reserves that are capital and the reserves that are appearing in the balance sheet. appearing in the balance sheet. Restructuring of equity and Restructuring of equity and preference capital becomes a preference capital becomes a complex process involving a complex process involving a process of law and is a highly process of law and is a highly regulated area.regulated area.

Reasons behind equity Reasons behind equity restructuring.restructuring.The following are the reasons for which The following are the reasons for which

equity restructuring is done:equity restructuring is done: Correction of over capitalizationCorrection of over capitalization To provide respectable exit To provide respectable exit

mechanism for shareholders in the mechanism for shareholders in the time of depressed markets by time of depressed markets by providing them liquidity through buy providing them liquidity through buy back.back.

Reorganizing the capital for achieving Reorganizing the capital for achieving better efficiencybetter efficiency

To wipe out accumulated lossesTo wipe out accumulated losses To write off unrecognized expenditureTo write off unrecognized expenditure To maintain debt-equity ratioTo maintain debt-equity ratio For raising fresh finance.For raising fresh finance.

Can your Business benefit Can your Business benefit from Financial Restructure ?from Financial Restructure ?

Financial restructuring is any Financial restructuring is any substantial change in a substantial change in a company’s financial structure, or company’s financial structure, or ownership or control, or business ownership or control, or business portfolio, designed to increase portfolio, designed to increase the value of the firm.  If you want the value of the firm.  If you want to increase the value of your to increase the value of your firm, you may need to reorganize firm, you may need to reorganize your financial assets in order to your financial assets in order to create the most financially create the most financially beneficial environment for the beneficial environment for the company.company.