Finance Minister Nirmala Sitharaman on Sunday announced as part of the economic relief package that the debt due to COVID-19 will be excluded from default. It will help companies, with a better debt profile, raise capital through their financially weak subsidiaries during the COVID-19 crisis time, and skip making repayments.
Experts are of the opinion that even big companies will rush to avail of this opportunity as it won't be difficult for them to get loans because of their debt profile.
FM Sitharaman articulated that the definition of coronavirus-related debt will be explained in the notification. "Maybe beginning February 1 or another date. The mind will be applied," she said.
"The big question at this point in time is whether the banks will be ready to lend to the stressed companies which are dealing with losses due to coronavirus-induced pandemic. They will not do it as bank executives will have to be answerable for defaults. If companies fail to repay, it will reflect in the books of the banks. Will the banks be ready for that?" said an executive with a public sector bank.
So what type of firms are currently getting loans? Big companies in India are in a hurry to raise large sums of money from debt markets by borrowing from banks, which now have access to low-cost capital from the Reserve Bank of India (RBI).
Reliance Industries (RIL), Larsen & Toubro (L&T), Mahindra and Mahindra, Tata Steel, TVS Motors, and NHPC recently announced that they will raise around Rs 40,000 crore to keep themselves cash-ready for the protracted lockdown
RIL plans to raise Rs 25,000 crore from the debt market through the issuance of non-convertible debentures (NCDs) in tranches on a private placement basis. The Mukesh Ambani led conglomerate will also raise Rs 53,215 from the equity market through a rights issue.
Whereas, the Tata Group, Mahindra and Mahindra and L&T plan to mop up funds from bond markets after the RBI's special central bank facility allowed lenders to borrow cheaply. Tata Steel will raise up to Rs 7,000 crore via non-convertible debentures (NCDs) in one or more tranches. Tata Motors also plans to raise Rs 1,000 crore through NCDs.
At least 328 entities across sectors, including those backed by big conglomerates, have opted to avail RBI's three-month moratorium on debt repayments, rating agency ICRA said earlier. The list of these entities comprises companies such as Tata Group, JSW Group, and GMR Group.