Over 200 construction entities entered the resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC) till March 2019, according to ICRA Ratings, a credit rating agency. Out of these, only 59 entities have either achieved resolution or ordered liquidation while the balance 143 entities are into the on-going process.
According to ICRA, resolution of stressed construction companies has significant challenges which has the likelihood of delaying the process and reducing the realisable value considerably.
This is due to the fact that while the implementation of IBC has improved the situation, smooth resolution still remains a far cry, according to ICRA. As many construction companies which were under financial stress have entered the Corporate Insolvency Resolution Process (CIRP) with a lag, the financial creditors are likely to face high haircuts, it said.
Financial creditors of 15 large companies, which entered the resolution process, have made claims worth Rs. 1.3 lakh crore, as per ICRA. As of now, no resolution plan is in sight for all these large construction entities, which is likely to result in some of the companies being liquidated.
The liquidation value of a construction company is expected to be very small (less than 10% of the financial creditors) in most of the cases as construction companies do not have sizeable fixed assets and a large part of their borrowings comprise working capital debt. Some entities have got the resolution plan approved; however, the haircuts to the lenders in most of the cases have been significant.