Bankers are going to ‘investigate’ construction firms before debt restructure
Banks have started insisting on investigative audits for engineering, procurement and construction (EPC) units who are looking to recast their loans. A forensic team will evaluate such companies and reduce the chances of any ‘package failure’ in corporate debt restructuring (CDR).
The bankers will look in a detailed manner in case of all the related party transactions, relationship between holding companies and special purpose vehicles. The disclosures, according to bankers, are almost always insufficient and they need to dig deeper to find the truth. A lot of such companies have substantial amount of funds stuck in accounts receivable and their realisation needs to be evaluated.
Over the past few years, several projects have come to light where either the projects have become unviable or the contract awarding company has a cash flow problem. EPC companies like Gammon India, Hindustan Construction Company (HCC), Soma Enterprises and the EPC business of Lanco Infratech have undergone CDR.
In CDR, banks relax interest payments schedules and also provide some extra funding to help the company get going. However, bankers notice that this has been misused for a number of times.
Source: Business Standard
Banks, cahs flow, CDR, default, engineering procurement construction, forensic audit, Gammon India, Hindustan Construction Company (HCC), Loan, Misuse, recast loan, Soma Enterprises
