Scheme aims at financial turnaround and revival of power distribution companies. In 2012, the central government had announced a financial restructuring package frp to solve the immediate funding needs of the. The centre today said its debt restructuring package for the state power distribution companies would be linked to increase in power. Uday hinges on structuring of discom debt takeover business. Six states have signed the uday contract with the union government. It is a case of corporate restructuring of a completely government owned discom. Fiscal responsibility and budget management frbm became an act in 2003. Ccea clears changes to discom debt restructuring package. Reviewing the process for sovereign debt restructuring within. Gerd hausler, francois gianviti, and timothy geithner august 1, 2003. Discoms, the weakest link in the power value chain can it. The debt ridden state discoms are in a much better now shape than before. Up to 25% of the grant can be given as equity where the discom requires equity. Domenico lombardi2 abstract this paper provides a methodology for assessing the appropriate size of debt relief in sovereign debt restructuring initiatives, with the baseline premise being that a restructuring must be principles based.
Discom, ajmer discom and jodhpur discom, their lenders and suppliers on restructuring their payables, debt from lenders, and debt service. Discoms, the weakest link in the power value chain can it be. Nov 28, 20 the cabinet committee on economic affairs on thursday approved power ministrys proposal of amending the debt restructuring package for electricity distribution companies discoms. Government of india will not include the debt taken over by the states as per the above scheme in the calculation of fiscal deficit of respective.
The discom appointed local ngos to work as local franchisees, only in rural and extremely interior areas. The constant losses of state electricity boards have created a debt trap. The reform process of the madhya pradesh power sector had its genesis in the late. Ujwal discom assurance yojna uday for financial restructuring of debt of power distribution companies. Nonslr bonds issued by states shall have maturity period of 1015 years with a moratorium on. However, any borrowing after fy17 to takeover discom debt shall bereckoned as a partof net bor rowing ceiling. An estimation for korea by jae chung and lev ratnovski imf working papers describe research in progress by the authors and are published to elicit comments and to encourage debate. Total 16 states have agreed to join uday scheme and the last one to join was manipur and tripura. Piyush goyal, the minister of state for power and new and renewable energy first announced the ujwal discom assurance yojana uday. Ninety per cent of the power distribution loans may be on course to being restructured, but the success of the centres ambitious ujwal discom assurance yojana uday scheme hinges on the manner in which the debt of power distribution companies discoms is eventually transferred to the state governments.
Corporate debt restructuring can be an important component of economic adjustment programs supported by the imf. November 3, 2016 the centre has told the tamil nadu government that it cannot give any relaxations for. The union ministry of power has announced that about 97% of the total outstanding debt of all state power distribution companies discoms has been covered under the ujwal discom. Exp e nd itur a aly s cost breakup of utilities utilitywise trends in power purchase costs. It is usually less expensive than a bankruptcy would be.
The financial restructuring of debt under this scheme will help bihar to speedily provide power to around 160. The information of loansdebts taken over under uday and. The estimated total loss run up by the sebs has been pegged at rs 2. Assessingtheappropriatesizeofreliefinsovereigndebt. Apr 09, 2020 corporate debt restructuring is the reorganization of a companys outstanding obligations, often achieved by reducing the burden of the debts on the company by decreasing the rates paid and. Ghausia mushtaq2 abstract this paper serves the very purpose of defining the corporate restructuring as a financial strategy adopted towards the financial development and enhancement of an organization suffering from a major set back at any level of operation. Private debt restructuring may be needed to revive medium term productivity and growth, thereby supporting a countrys balance of payments adjustment.
Giddy corporate financial restructuring 15 dear michael, february 11, 2004 mr. Knowledge partner for the conference on restructuring debts of discoms for sustainable power growth on 10th april, 20. Corporate debt restructuring and its impact on financial. In this backdrop, nim compression for r, resolve the stressed discoms and lower the cost of. Analysing the problems of power discoms of india gktoday. Distribution utility financial restructuring is it just postponing the crisis. Corporate restructuring a financial strategy vikas srivastava1 ms. Bihar is the sixth state to join uday discom for debt. Debt consolidation and debt restructuring are effective means to get out of debt if it suits your debt and financial situation. Discom debt is not reckoned against the next borrowing ceiling of the state determined by department of expenditure, mof under 14th finance commission recommendations. Power ministry says cant relax frbm norms for borrowing business line. Distribution utility financial restructuring is it just. The financial restructuring of debt under this scheme will help bihar to.
Ujwal discom assurance yojana uday is a financial restructuring and efficiency enhancing programme, aims to reduce the debt burden of the state owned electricity distribution. According to reports, a debt restructuring plan was made for discoms in uttar pradesh, punjab, rajasthan, haryana, andhra pradesh, tamil nadu and madhya pradesh. Half of the proposed amount would be issued as bonds by the discoms and backed by a state government as a guarantee. States were to take over 75% of the discom debt as on sept 30, 2015 in two tranches, 50% in fy 201516 and 25% in fy 201617. Financial restructuring and bailout of the discoms uday. Restructuring strategies in the indian distribution sector. Ujwal discom assurance yojna government of indias novel bailout scheme for state power utilities as part of the plan, adoption of which is voluntary, the states will have to take over 75% of the liability of. Under this plan, 50 per cent of the shortterm outstanding liabilities of this distribution companies discoms would be taken over by state. Aspirants can also download the notes pdf at the end of this article.
Debt restructuring often occurs when a person or company has taken on too much debt and is in danger of bankruptcy. Outstanding debt of discoms payable days trends in subsidies booked and received key ratio analysis 8. Restructuring debts of discoms for sustainable power growth to highlight the issues and. Electricity subsidies in india and its impact on distribution. Restructuring debts of discoms for sustainable power growth. The debt restructuring of state discoms will lead to annual saving in interest cost to the tune of around rs 117 crore. Another major scheme is uday ujwal discom assurance yojana which is basically a debt restructuring plan for discoms. Oct 22, 2019 uday ujwal discom assurance yojana scheme, launched in november 2015, is the latest attempt to address the severe financial stress due to accumulation of debt by the discoms, with a focus on. In this way the balance sheet can be strengthened so that when downturns in business occur or opportunities arise, lending sources are available. Discoms debt restructuring package to be performance linked.
Rising liabilities increased debt burden more bailouts lack of timely subsidy payments identified as a major driver of discom debt shunglu committee report, financial restructuring plan timely payment could have avoided the interest burden, provided clarity. Ujwal discom assurance yojana uday is a financial restructuring and efficiency enhancing programme, aims to reduce the debt burden of the state owned electricity distribution companies discoms. In india ratings opinion, indian governments financial debt restructuring plan for state distribution companies discoms is a well thoughtout scheme. Damodhar abstract ujwal discom assurance yojana uday is a financial. Rising liabilities increased debt burden more bailouts lack of timely subsidy payments identified as a major driver of discom debt shunglu committee report, financial restructuring plan timely.
Uday yojana is an important topic for the ias exam. Discom debt shall be taken over in 201516 and 25% in 201617. The firms owners have the option of choosing the sequence of restructuring negotiations with the creditors. Government bonds intended to write off 75% of discom debt. Last year, the government announced the financial restructuring package for the power distribution companies discoms which are reeling under losses of rs 2. This financial restructuring of the debt burden of the state discoms is 75%100% complete for individual. Nonslr bonds issued by states shall have maturity period of 1015 years with a moratorium on repayment of principal up to 5 years, as required by the state. Here we take a look at the status of bonds issued by the states under the scheme as part of debt restructuring. Debt restructuring financial definition of debt restructuring.
Discoms debt restructuring package to be performance. The objective of the act is to ensure intergenerational equity in fiscal management, long run macroeconomic stability, better. The steep fall in oil prices improves indias manoeuvrability to address an economic recession. Germany is renowned for handling matters with greatefficiency and success. Financial restructuring of state discoms minimal stress on states fiscal consolidation path special report welldesigned restructuring plan. Most of the state distribution companies are running in losses. Finally, outofcourt debt restructuring can also comprise procedures involving public authorities or even the courts.
Introduction the global financial crisis has distressed the corporate sector in a number of countries, affected both by a tightening of credit and weaker consumer demand. This debt restructuring agreement this agreement, dated as of july 19, 2004 the effective date, is made by and among jonathan ungar ungar, alan henry woods woods, and together with ungar, the note holders and venture catalyst incorporated, a utah corporation the company. This is a novel scheme and has potential to change the fate of. If it is determined that your company is carrying excessive debt, it is important to take action quickly. It is general knowledge that many german companies believe german restructuring law not very helpful and prefer to restructure their debts by entering is. Thirteen states have joined the scheme to restructure rs 2. These states were to issue nonslr including sdl bonds, to take over debt and transfer the proceeds to discoms in a mix of grant, loan, equity. We analyze a distressed firm indebted to many creditors. A debt retirement and restructuring plan is in order. The only book to cover bank, corporate and sovereign restructuring in a single volume. The taking over of outstanding debt by government of haryana shall be in accordance with provisions of this mou.
Debt sustainability is a term that has been used with increasing frequency in the academic literature and multilateral policy discussions, but with different connotations under different. Not only that, if you can discipline yourself enough to follow through with the rules of these debt solutions, then you can completely pay off your debts. The annual saving in the interest cost to the state would be around rs. In 2010 debt mediation has become a primary way for small businesses to refinance in light of reduced lines of credit and direct borrowing. Under uday, participating states will take over their public discom private discoms are not allowed to participate in the programme debt over two years with the debt benchmarked to. Replies to data gaps on arr and tariff petition for fy 201920. The discom dilemma in india i magine a scenario where you keep facing power cuts for hours and days together.
Does uday have the potential to turn out to be a suryuday. Jan 27, 2017 total discom debt in the country amounts to rs. Benefits and costs of corporate debt restructuring. Assessingtheappropriatesizeof reliefinsovereigndebt restructuring martin guzman1. Piyush goyal, the minister of state for power and new and renewable energy first announced the ujwal discom assurance yojana uday in november 2015. Debt restructuring wide range of services container transportation, logistics, port and customs services. The ujwal discom assurance yojana uday launched by the government of india, ministry of power for the financial turnaround of power distribution companies discom with an. As on september 2015, the total debt of all stateowned discoms was rs. Eisner the walt disney company 500 south buena vista. Discom debt not taken over by the states shall be converted by the banksfis into loans or bonds with the interest rate. The indiscipline also does not augur well for the centres discom debt restructuring scheme ujwal discom assurance yojna uday. Uday has addressed these issues through the refinancing scheme where in states to take over 75% of discom debt, as on september 30, 2015, over 2 years 50% of discom debt shall be taken over in 201516 and 25% in 201617 as against a prolonged period of 5 years as per frp.
Jul 05, 2017 the union ministry of power has announced that about 97% of the total outstanding debt of all state power distribution companies discoms has been covered under the ujwal discom assurance yojana uday. Based on our 127 years of global experience in the power sector, we are confident that the discoms will define a courageous path forward towards profitable financial restructuring. Debt servicing was impacted, having major impact on financial sector possibility of huge npas in financial sector background distribution utility financial restructuring is it just postponing the crisis. Like debt restructuring, debt mediation is a businesstobusiness activity and should not be considered the same as individual debt reduction involving credit cards, unpaid taxes, and defaulted mortgages. Wp16204 benefits and costs of corporate debt restructuring. Corporate debt restructuring definition investopedia. Approaches to corporate debt restructuring in the wake of. Types, regulation, and patterns of practice john c. Coates iv1 the core goal of corporate law and governance is to improve outcomes for participants in businesses organized as corporations, and for society, relative to what could be achieved. Debt restructuring is beneficial to the person or company requesting it because it often results in a significant discount andor a more flexible repayment schedule. Bihar is the sixth state to join uday discom for debt restructuring. Apr 24, 2019 debt restructuring is a method used by companies to alter the terms of debt agreements in order to achieve some advantage with outstanding debt obligations.