Financial RestructuringCynthia Fernandes Roll No :- 26 Specialization- Finance

Restructuring- term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs.

Portfolio Restructuring

Corporate Restructuring

Organisational Restructuring Marketing Financial Operational Personnel

Functional Restructuring

Financial Restructuringy Change in Debt Structure y Change in Capital Base y Change in Group Structure

Change in Debt Structurey 1. Corporate Debt Restructuring (CDR) - with leading

banks and financial institutions helps in assisting companies to get their debts restructured. y 2. One time Settlement (OTS) - companies get their long outstanding debts through ONE TIME SETTLEMENT of RBI y 3. Swapping of Debts - through banks and financial institutions. Swapping of debt can be for cost reduction as well as tenure adjustment

Change in Capital Basey Buy Back Shares - Buy back is used as a financial strategy by

corporates for streamlining their capital structure, swapping equity for debt, as well as for reducing the number of shareholders to reduce the cost for servicing them. y Reduction in Capital - Also known as a partial redemption, it often has a minimum permitted amount and is a process whereby the issued capital of a company is reduced. There are two circumstances in which this might take place. These are: i. Where future operations of the company are expected to be on a reduced scale so that a smaller level of finance will be required ii. Where it has to be accepted that past revenue losses can never be made good and that they amount to a permanent loss of capital

Change in Group Structurey 1.Merger and De-merger within the Group Companies -

i. Merger - A legal action resulting in the unification of two or more legal entities. Such an event can be advantageous because of Economies of Scale and also give a competitive edge by synergies derived from the unification ii. De-merger - The splitting of a company often originally formed as a result of a merger, into two or more separate companies. It gives the existing shareholders shares in both companies y 2.Amalgamation - The combination of two or more commercial companies into one unit y 3. Disinvestment- selling of existing assets of a firm to another firm.

Symptomsy Increasing operating cost and cost of finance. y Falling in share prices, without scope of correction. y Declining earning ratios for divisions, vendors, distributors, y y y y

shareholders. Increasing cost a supply side and demand side of valuation. Imbalance between core cost and support cost. Increasing mismatch between indirect taxes and direct taxes. Growing costs on marketing operation and hence growing pressure on manufacturing costs.

Methods of Financial Restructuringy Cash management and cash generation during crisis y Impaired Loan Advisory Services (ILAS) y Sale of underutilized assets, such as patents or brands y Outsourcing of operations such as payroll and technical support to a y y y y y y

more efficient third party Moving of operations such as manufacturing to lower-cost locations Reorganization of functions such as sales, marketing, and distribution Renegotiation of labor contracts to reduce overhead Refinancing of corporate debt to reduce interest payments A major public relations campaign to reposition the company with consumers Forfeiture of all or part of the ownership share by pre restructuring stock holders

Measures for Effective Restructuringy Define purpose, with maximum details of possible y y y y

sustainability. Decide the sequence of restructuring. Check all minute details of each operation to be restructured. Have a parallel cost benefit chart along with PERT-CPM chart of operation. Decide a lead team of key executives and owners to carry out the process of restructuring.