FINANCIAL

RESTRUCTURING.

PREPARED BY :
NAVEEN KUMAR & TARUN VENAI.
Meaning of Financial
Restructuring.
 The term “ Financial restructuring ” is
the process of reshuffling or
reorganizing the financial structure,
which primarily comprises of equity
capital and debt capital. Financial
restructuring can be done because of
either compulsion or as part of the
financial strategy of the company.
For example :
 Kingfisher Airlines' losses in Q3, taking
the total loss to $240 million previous
year, as the ailing Indian carrier was
squeezed by high fuel costs, a weaker
rupee and competition.
 Current market price is 19.95 as per
BSE and 20.05 as per NSE till on 14
march,2012 by latest.
 Kingfisher Airlines has opted to do
Financial restructure to cover their loss
margin.
Continued…
 Financial restructuring is the
reorganization of the financial assets
and liabilities of a corporation in order
to create the most beneficial financial
environment for the company.
 The process of financial restructuring
is often associated with corporate
restructuring, in that restructuring the
general function and composition of
the company is likely to impact the
financial health of the corporation.
Why financial
Restructuring ?

Financial Restructuring is done for

various business reasons and those
could be….
 Poor financial performance

 External competition

 Erosion (loss) of market share

 Emerging market opportunities

Components of Financial
Restructuring.
1. The financial restructuring can be
either from the assets side or the
liabilities side of the balance sheet. If
one is changed, accordingly the other
will be adjusted.
2. The two components of financial
restructuring are :
 Debt Restructuring.
 Equity Restructuring.
Debt restructuring.
 Debt restructuring is the process of
reorganizing the whole debt capital of
the company. It involves reshuffling of
the balance sheet items as it contains
the debt obligations of the company.
 A company’s financial manager needs
to always look at the options to
minimize the cost of capital and
improving the efficiency of the
company as a whole which will in turn
call for the continuous review of the
debt part and recycling it to maximize
efficiency.
Components of debt
restructuring.
Restructuring of secured
long-term borrowings :
 Restructuring of secured long-term
borrowings will be done for the
following reasons such as
 reducing the cost of capital for
healthy companies.
 for improving liquidity and increasing
the cash flows for a sick company.
 Restructuring of unsecured
long-term borrowings :

Restructuring of the long-term

unsecured borrowings will be done
depending on the type of borrowing.
These borrowings can be public
deposits, private loans (unsecured)
and privately placed, unsecured bonds
or debentures.
 Restructuring of secured
working capital borrowings :
 Credit limits from commercial banks,
demand loans, overdraft facilities, bill
discounting and commercial paper fall
under the working capital borrowings.
All these are secured by the charge on
inventory and book debts and also on
the charge on other assets.
 The restructuring of the secured
working capital borrowings is almost
all the same as in case of term loans.
 Restructuring of other short
term borrowings :
 The borrowings that are very short in
nature are generally not restructured.
These can indeed be renegotiated with
new terms. These types of short-term
borrowings include inter-corporate
deposits, clean bills and clean over
drafts.
Equity restructuring.
 Equity restructuring is the process of
reorganizing the equity capital. It
includes reshuffling of the
shareholders capital and the reserves
that are appearing in the balance
sheet. Restructuring of equity and
preference capital becomes a complex
process involving a process of law and
is a highly regulated area.
Reasons behind equity
restructuring.
The following are the reasons for which equity
restructuring is done:
 Correction of over capitalization
 To provide respectable exit mechanism for
shareholders in the time of depressed
markets by providing them liquidity through
buy back.
 Reorganizing the capital for achieving better
efficiency
 To wipe out accumulated losses
 To write off unrecognized expenditure
 To maintain debt-equity ratio
 For raising fresh finance.
Can your Business benefit
from Financial Restructure ?
 Financial restructuring is any
substantial change in a company’s
financial structure, or ownership or
control, or business portfolio, designed
to increase the value of the firm.  If you
want to increase the value of your firm,
you may need to reorganize your
financial assets in order to create the
most financially beneficial environment
for the company.