What is Corporate Debt Restructuring (CDR) ?
Defination:
- CDR is an arrangement where the lenders and the management of a defaulting company strike a deal to revive the borrower.
- A borrower going through CDR receives some breathing space to repay loan on the condition that it sticks to certain commitments.
- Even today banks have the power to convert outstanding debt into equity, but not all lenders and CDR deals insist on such conditions.
- Besides such conversion - be it based on the borrower's book value for unlisted firms or as per the SEBI (Securities and Exchange Board of India) formula in case of listed companies - would rarely give the joint forum of lenders 51% equity interest in defaulting companies.
- This will change. For instance, even if the unpaid loan amount is as little as Rs.500 crore, breach of certain pre-agreed covenants would pave the way for lenders to gain 51% control of the equity.
- Once the CDR covenants are breached, lenders would decide in a month or so whether they would accelerate the process to take control.
- If banks think there is reason to move in, they would then serve a notice to the company where it would be mentioned that after a certain time, the lenders would become the majority shareholder.
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