Why Deccan Chronicle has to read debt restructuring rule book again

The decision to consider the proposal of corporate debt restructuring (CDR) for loans to the financial troubled Deccan Chronicle has been deferred by its lenders till the next meeting on 26 September as bankers remained divided over whether restructuring of debt is a viable option to recover their dues.

According to various reports, there is a a general consensus among bankers that the accounting systems in the company should be scrutinised first and a fresh lease of life by way of a CDR package should only be given after the results of the forensic audit of its accounts are known.

While the media company’s board of directors at its meeting held on 7 September 2012, passed a resolution to restructure the existing debt of the company by an application to the CDR Cell, the lenders failed to make a formal application in support of the proposal.

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Under CDR, creditors, make concessions by reducing the interest rate, rescheduling repayments, converting debt into equity/ preference shares, waiving principal/ interest (to a limited extent), and converting working capital irregularity into working capital term loan. However, given the nature of problems that DCHL faces, it may not be eligible for debt recast cell entry, an Economic Times report said today.

According to the guidelines for CDR, an account can only be taken up for restructuring if its financial viability is established. However there is still ambiguity over the extent of the liabilities of Deccan Chronicle and who has lien (security similar to a bond) over the assets that the company has mortgaged to several lenders to raise funds.

Secondly, the rules also say that borrowers indulging in fraud and malfeasance are not eligible for restructuring. However, DCHL management is already facing a criminal charge in a case filed by Karvy Broking, accusing it of forgery and breach of trust. The winding-up petition filed against the company by IFCI is also expected to come up for hearing at the Andhra Pradesh high court this week.

Deccan Chronicle Holdings’ total debt to be restructured is about Rs 2,300 crore, even though the total exposure to the company is about Rs 5,000 crore. The government on Monday said a forensic audit of the accounts and debts by Canara Bank, the lead banker of the lenders’ consortium, was under way to study if there had been a systemic failure, and bankers, taking a cautionary approach, only want to pass a resolution on CDR once the forensic audit is complete.

While, DCHL accounts are being forensically audited and promoters are facing a criminal complaint for allegedly pledging shares twice over to borrow money, the only ray of hope for the company is the auction of its IPL team Deccan Chargers, the base price for which is being pegged at Rs 750 crore. The proceeds of the sale will be used to pay off these lenders.