Skip to main content

How To Profit From Debt Recast?

Retail investors could look at partial profit booking; uninformed investors should stay away

However, the stock has been moving up on the news of the company going for corporate debt restructuring (CDR). The scrip is trading more than four per cent up at `38 since the date of announcement of its CDR. The news of the Koutons CDR has been doing the rounds since March 26. Nayyar, who sold his entire holding in Koutons a week before the announcement, now thinks he has made a mistake.

Typically, when a company announces its CDR plans, its share price tends to shoot up. But, owing to the market conditions, not many of the companies which have announced restructuring plans, have followed this trend last year. The companies that have announced CDR plans during the last year include Kingfisher Airlines, Wockhardt, Vishal Retail and the unlisted Air India.

CDR allows financially troubled companies with multiple lenders and loans of more than `20 crore to restructure those loans and this is construed as good news by the markets.

The position of the debt of a company should improve after the restructuring. The pressure of interest will reduce and this will definitely improve its financial performance

However, one needs to look at the reasons for the company or creditor's decision for going for CDR. It could be either due to the overall business scenario like the industry going into recession, which hampers the debt servicing capabilities of a company. Or, it could be just a case of bad management. For retail investors, the best case is to take an informed decision after coming to know about the exact reasons and terms for CDR.

RESTRICTIONS IMPOSED

In some cases, CDR may involve equity dilution by converting the debt into equity. There could be restrictions on the payout to shareholders, expenses, management salaries and so on. Acting as a bitter medicine to cure ills, these might result in companies coming out with cleaner balance sheets, which help them in business further.

For instance, the shares of denim manufacturer, Arvind Ltd, fell to a low of `9in the wake of interest defaults in the late 1990s. Srikanth Desai, who had bought his shares in 1996 at `113 apiece, was contemplating getting out of them, even at a loss. However, his broker advised holding on as the company had opted for CDR. In 2005, Desai exited when the share price touched a high of `140.

RETAIL STRATEGY

Retail investors, who have professional help at hand, could remain partially invested to benefit from any possible outcomes post the CDR implementation. One should book profits of 25 per cent to 35 per cent of his equity holding in the company. This money could be invested in a better stock, adds Mathew.

Yet others advise uninformed retail investors to stay away from such stocks completely. One needs to see if the company would be able to generate the necessary cash as required to run the business even after the CDR. It is difficult for the retail investor to judge such possibilities. Typically, most of the companies that are likely to have a successful CDR would be those that have a good asset base and are backed by competent promoters.

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...

ICICI Prudential Value Fund Series I

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   Performance of the scheme will be benchmarked to the S&P BSE 500 index ICICI Prudential Value Fund is a closeended equity scheme. The scheme will have tenure of three years (1095 days) from the date of allotment of units. Units of the scheme will be fully redeemed at the end of the maturity period, unless rolled over. NFO PERIOD:   The NFO is open from October 18 to 28. The minimum subscription during the NFO period is Rs 5,000. SCHEME OBJECTIVE:   The scheme aims to provide long-term capital growth by investing in a well-diversified portfolio of equity and equity-related securities. INVESTMENT STRATEGY:     The fund proposes to invest in stocks that are trading at a huge discount in the BSE 500 index and plans to book profit and distribute dividen...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now