Emerging Issues

of Finance UNIT 15 FINANCIAL RESTRUCTURING

Objectives:
The objectives of this unit are to:

• Understand the concepts of Corporate and Financial Restructuring.

• Explain the different methods that are followed by the companies in
undertaking Restructuring.
• Elucidate the procedure involved in each of the methods of Financial
Restructuring.
• Discuss the merits, demerits, and reasons of each of the options available
for Restructuring.
• Discuss the contemporary developments with respect to Financial
Restructuring.

Structure:
15.1 Introduction
15.2 Corporate Restructuring
15.3 Financial Restructuring
15.4 Methods of Financial Restructuring
15.5 Buyback of Shares
15.6 Conversion of Debt/Preference Share into Equity
15.7 Corporate Debt Restructuring
15.8 Leveraged Buyouts
15.9 Equity Restructuring
15.10 Divestiture
15.11 Disinvestment
15.12 Changes in the total Corporate Structure
15.13 Summary
15.14 Key Words
15.15 Self Assessment Questions
15.16 Further Readings

15.1 INTRODUCTION
Creation and maximization of value (also called wealth) is said to be the
objective function of Financial Management. There are diverse ways by
which value maximization occurs in a business firm. When the demand for
goods and services is growing, firms tend to expand their business capacity
and seize the opportunity of increasing demand. This could be done by
constructing more production units or opening up of more and more
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operational units. Alternatively, expansion of business activity also, could be Financial
Restructuring
made possible through the acquisition of other businesses. It is natural to
acquire business units of similar nature or producing the same or similar
goods and services. Sometimes, companies also expand their size of
operations by taking over of unrelated businesses; not having any relation to
the present business or businesses carried out. The former is called ‘related
diversification’ and later is known as ‘unrelated diversification’. Some of the
takeovers that happened in India in the present century are: (1) Mittal Steel
taking over of Arcelor Steel, (2) Vodafone and Idea merging into one, (3)
Wal-Mart acquiring Flipkart, (4) Tata Steel bought out Corus Steel, and (5)
Vodafone acquiring majority stake in Hutch Essar. These are all the examples
for related diversification. Companies that are prospering well and that have
accumulated cash surpluses venture to diversify into many other areas of
business activity as has been done by big business houses in India such as
Reliance Industries, Bharti Enterprises, Birla Group, ITC, Adani Group,
Videocon Industries, and many others. In all these cases, the main objective
is to maximize the value of the individual business firm or the Group. In the
broader sense, this is termed as ‘Corporate Restructuring’. Let us know about
this in much more detail.

15.2 CORPORATE RESTRUCTURING

Corporate Restructuring (CR) is a broader term which includes all other types
of restructuring such as; financial restructuring, debt restructuring, capital
structure changes and the product mix. There are two basic factors that
necessitate Corporate Restructuring in the business world. First, when the
business wants to expand or diversify its activities, it may opt for
restructuring through acquisitions, mergers, takeovers, and joint ventures, etc.
This is mainly to maximize the value of the business. Second, Corporate
Restructuring becomes a necessity, when the business conditions are not
favourable or there is recession going on in the economy (as it had happened
due to the Covid-19 pandemic), in order to remain in the business, certain
actions like disinvestment, downsizing, sell-off the whole or part of the
business may be resorted to.

Sometimes due to the heavy pile-up of load and the force of the creditors, a
restructuring plan needs to be implemented like the one offered by the Banks
and Financial Institutions in the name of ‘Corporate Debt Restructuring
(CDR). Whatever be the reasons for restructuring, it is resorted to either for
maximizing the value of the firm or minimizing the impending loss or
unfavorable situation. Many of the turnaround strategies come under this
concept. Therefore, Corporate Restructuring can be defined as the sum of
actions taken by a business in the process of redefining itself either to pursue
value maximization or to keep off the impending decline.

Reasons for Restructuring:

The following can be said to be the major reasons as to why companies/

businesses resort to restructuring:

 To seize the expanding business opportunities in the economy. When the 309
Emerging Issues
of Finance economy is growing, there will be many business opportunities coming
in the way of business. Those firms that have the resources or cash
surpluses or whose market standing is good may think of taking
advantage of the expanding economy.

 Sometimes policy changes brought out by the Governments create new

opportunities. Like the Economic Reforms initiated in India under
different phases, beginning 1991. The process is still continuing.

 Advancements in technology create new opportunities for business. For

example, advances in research in cell biology or stem cell research
necessitate the Biotechnology and Pharmaceutical companies to redefine
their businesses. If they are not conscious of these developments, they
will be out of the scene. Another example could be the
Telecommunications sector. Allocation of the spectrum, mobile services
would definitely alter the complexion of the business units.

 Corporate Restructuring by some businesses may also be done to gain

control over the market or as a measure of strengthening the monopoly
power. In this kind of restructuring, the firm would be in a position to
dictate the market and other competitors. For example, when mobile
technology has come into the scene, there used to be about 15 players in
the market. Now there are only three to four major players like Airtel,
Vodafone, and Reliance.

 Sometimes, companies resort to organizational changes to improve upon

Managerial efficiency. This may be in the nature of creating
conglomerates or division of the Group into independent units. Sharing
of assets or changes in the ownership, as it happened in the Reliance
after the demise of Dhirubhai Ambani, may make it necessary for
businesses to go for restructuring.

 Threats from new forms of business establishments also may prompt

certain businesses to gain an advantage. A suitable example is the ‘Start-
up Culture’ when the small businesses are encouraged to develop into
big and create an ‘innovative environment’, many enthusiastic
individuals floated the Start-up units and many of them flourished too.
The corporate world, being sensitive to the development, encouraged
many of them to tie up for business development. This can be considered
a healthy sign of corporate growth.

Types of Restructuring:

Broadly speaking, the following are the different types of Corporate

Restructuring:

a) Financial Restructuring: This involves decisions pertaining to

acquisition, mergers, divestitures, leveraged buyout, leveraged
recapitalization, reorganization of capital, etc.

b) Technological Restructuring: This involves decisions pertaining to

redesigning the business process through revamping existing
310 technologies.
c) Market Restructuring: This involves decisions regarding product mix, Financial
Restructuring
market positioning to suit the changed situations.

d) Organizational Restructuring: During the post-liberalization period

many Indian firms embarked on organizational restructuring programs
through regrouping the existing businesses into a few compact business
units through decentralization and delayering, downsizing, outsourcing
the non-value adding activities, and subcontracting.

ACTIVITY-15.1:
a) List out the reasons for Corporate Restructuring. Cite Examples from
Indian Experience.
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15.3 FINANCIAL RESTRUCTURING

This is one of the major aspects of Corporate Restructuring. Nonetheless,
every restructuring would finally affect the financial profile of the company.
Viewed in the larger context, Financial Restructuring is defined as the
process of reorganizing the finances of the business unit, in terms of assets
and liabilities. It includes the rejig of capitalization, capital structure, cost of
capital, debt-equity, Cashflow streams, etc. Any measure intended to improve
upon the financial health or condition of the firm can be covered under the
Financial Restructuring. In recent times (2020), companies like NIIT,
Engineers India, NTPC, Wipro, TCS, ONGC, NMDC, IOC, NALCO, NLC
India, HCL Technologies, Pidilite Industries, etc., have offered to buy back
their own shares. Similarly, there are many companies now moving towards
paying off their debt and making them as zero debt companies and converting
them to only Equity Companies. As per one estimate, the top 50 companies
of India, have repaid their debt obligations to the extent of Rs.59,600 crore
during the first half of 2019-20. The list included companies like India
Cements, Saurashtra Cement, Binani Cement, Wockhardt, GTL, Hotel Leela,
Hindustan Construction, KS Oils, Jindal Stainless, etc.

15.4 METHODS OF FINANCIAL

RESTRUCTURING
As could be noticed from the above discussion, there are many methods of
Financial Restructuring. Quoted above are examples of just two of the
variants (buyback of shares and repayment of Debt). The following is the list
311
Emerging Issues
of Finance of such methods, which are presently resorted to by companies in India. Each
of these methods is explained in detail.

• Buy back of shares.

• Conversion of Debt/Preference Shares into Equity
• Corporate Debt Restructuring
• Leverages Buyouts
• Equity Restructuring
• Divestiture
• Disinvestment
• Changes in Capital Structure

Let us now discuss each of these methods in detail in the subsequent sections.

15.5 BUYBACK OF SHARES

Buyback of shares is a process by which the company proposed to buy its
own shares and thus reduce the number of shares outstanding. Not only the
company, but also the shareholders will have an opportunity to exit, if they
wish to from the company. The attraction to the shareholders is that a higher
price than the price prevailing in the market is offered to them to entice the
shareholders. From the company point of view, the following are some of the
reasons for considering this option:

• To utilize surplus cash available in the firm.

• To reduce the number of shares and thus improve EPS.
• To increase the shareholding of the promoters to avoid threat of
takeover.
• To enhance the return on capital/net worth.
• To boost up confidence among the shareholders in times of declining
share prices.
• To create positive signals on the market and thus help rise share prices.

Provisions of Companies Act, 2013:

There are three sections (Sections 68-70) that specify the procedure to be
followed by the companies that intend to buy back their own shares.
As per Section 68 of the Companies Act, 2013 the conditions for Buy-back
of shares are:

• Articles of Association must authorise Buyback, otherwise the company

has to amend the Articles by passing Special Resolution in General
Meeting.
• For buyback we need to pass Special Resolution in General Meeting, but
if the buyback is upto 10%, then a Resolution at Board Meeting needs to
be passed.
• Maximum amount of Shares that can be bought back in a financial year
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 is twenty-five percent of paid-up share capital and free reserves (where Financial
Restructuring
paid-up share capital includes equity share capital and preference share
capital; & free reserves including securities premium).
• Post buyback debt-equity ratio cannot exceed 2:1.
• Only fully paidup shares can be bought back.
• Company must declare its insolvency in Form SH-9 to Registrar of
Companies, signed by atleast 2 Directors out of which one must be a
Managing Director, if any.
• The notice of the meeting for which the Special Resolution is proposed
to be passed shall be accompanied by an explanatory statement stating-
1. a full and complete disclosure of all the material facts.
2. the necessity of buyback.
3. the class of shares intended to be bought back.
4. the amount proposed to be invested under the buyback.
5. the time limit for completion of buyback.
• The Company must maintain a Register of buy-back in Form SH-10.
• Submit return of buyback in Form SH-11 Annexed with Compliance
Certificate in Form SH-15, Signed by 2 Directors out of which one must
be a Managing Director, if any.
• A Company should extinguish and physically destroy shares bought back
within 7 days of completion of the buyback.
• Observe 6 months cooling period, i.e., no fresh issue of share is allowed.

• No offer of buyback should be made by a company within a period of

one year from the date of the closure of the preceding offer of buyback.

• The buyback should be completed within a period of one year from the
date of passing of Special Resolution or Board Resolution, as the case
may be.

According to section 69 of the Companies Act, 2013, where a Company

bought back shares out of free reserves or out of the securities premium
account, then an amount equal to the nominal value of the shares need to be
transferred to the Capital Redemption Reserve Account.

The Capital Redemption Reserve account may be utilized for paying

unissued shares of the company to the members as fully paid bonus shares.

According to section 70 of the Companies Act, 2013, A Company should not

buyback its securities or other specified securities, directly or indirectly –
• Through any subsidiary including its own subsidiaries; or
• Through investment or group of investment companies; or
• When company has defaulted in repayment of deposits or interest
payable thereon, or in redemption of debentures or preference shares or
repayment of any term loan.
313
Emerging Issues
of Finance • The prohibition is lifted if the default has been remedied and a period of
3 years has elapsed after such default ceased to subsist.
• When company has defaulted in filing of Annual Return, declaration of
dividend & financial statement.

Subject to the above provisions, a company can buyback its own shares.
Otherwise, it is feared that the entire process leads to manipulation of share
prices in the stock market.

Buyback Regulations of SEBI:

Keeping in view the provisions incorporated in the Companies Act, 2013, the
Securities and Exchange Board of India (SEBI) has come out with new
regulations in 2018, replacing those issued in 1998. The new regulations are
titled “SEBI (Buyback of Securities) Regulations, 2018. The main provisions
of these Regulations are:

• The most significant aspect of the Regulations pertains to the conditions

that must be followed for resorting to buyback. They are as follows:
 The maximum limit for offering buyback is put at 25% of the paid
up capital and free reserves.
 The debt to equity ratio after buyback should not exceed 2:1.
 The Equity shares proposed to be boughtback must be fully paid-up.
 The buyback shall not result in delisting of shares from the Stock
Exchanges.
 The gap between two buyback offers shall be more than one year.
 The company can use its free reserves, or the premium collected or
the proceeds of the issue of share capital for buyback purpose.
 No company shall directly or indirectly purchase its own shares
through its Investment Company or subsidiary.

• The other compliance requirements include:

 There shall have been a provision in the Articles of Association for

buyback.
 The buyback process should be completed within a period of one
year after passing the special resolution to this effect.
 The company shall make necessary disclosure of the particulars of
the activity to the Registrar of Companies, SEBI and the concerned
Stock Exchange within the time limits specified.
 15% of the number of securities proposed to be bought back or the
number of securities as per their share holding, shall be reserved in
favour of small shareholders.
 The company shall make a public announcement of buyback,
providing for all the material information.
 The offer of buyback shall remain open for a period of at least 10
working days.
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  The shares proposed to be bought back shall be categorized into two Financial
Restructuring
groups:
i) Those reserved for small shareholders, and
ii) Those meant for general category. The entitlement shall also
be calculated accordingly.

 The company shall follow proper procedures for extinguishing and

physically destroying the share certificates so bought. It shall take
place in the presence of an authorized person.

15.6. CONVERSION OF DEBT/PREFERENCE

SHARES INTO EQUITY
Conversion of Debt or preference shares into equity is another method
followed by the companies in the process of restructuring their finances. This
had been permitted in India, subject to certain guidelines incorporated in the
Companies Act, 1956. The same are continued with little modifications in
2013 Act. As per Section – 62 (3) of the Companies Act, 2013, if a company
takes a term loan, it can convert the same into share capital and an option
shall be given to such lenders and there shall be a special resolution to this
effect.
Similarly, there is the provision for conversion of loans into preference shares
and preference shares into equity. These ideas have come on to the scene,
when the Government of India (through Ministry of Corporate Affairs)
permitted the issue of Convertible Debentures and Preference Shares. After
the specified period, these securities get converted into equity at the option of
the holder, as per the terms agreed at the time of issue. SEBI has issued
detailed guidelines for conversion of Debt into Equity under different
circumstances of Debt Restructuring, subject to the Guidelines of the RBI in
this regard.

15.7 CORPORATE DEBT RESTRUCTURING

Corporate Debt Restructuring (CDR) was a scheme announced by the
Government of India through the Union Budget 2002-03 to provide some
relief to the borrowers without falling into the category of Non Performing
Assets (NPA) as per the guidelines of RBI. Keeping in view the difficulties
faced by some genuine borrowers and to keep them outside the purview of
BIFR and DRT and other legal proceedings, the RBI announced this scheme.
Under this scheme, viable Corporates that are affected by certain internal and
external factors in obliging to their payment schedules and also to avoid an
impending loss that may occur to the creditors are permitted to restructure
their debt, subject to the guidelines issued by the RBI. This scheme is
applicable to the loans borrowed by the Corporates from Banks and Financial
Institutions.

The following are the categories of loans eligible for restructuring under
this scheme:
315
Emerging Issues
of Finance Category-1:
i) Accounts / Loans classified as ‘Standard’.
ii) Accounts / Loans classified as ‘Substandard’.

Category-2:
This category includes Assets / Loans classified as ‘Doubtful’. The Corporate
Debt Restructuring (CDR) Scheme is not applicable to the following:

i) Accounts involving only one financial institution or one bank. The

scheme will cover only multiple banking accounts / Syndication /
Consortium accounts of corporate borrowers with outstanding fund-
based and non-fund based exposure above Rs. 10 crores from the
banking system.
ii) Corporates indulging in frauds and malfeasance.
iii) Willful defaulters.
iv) Accounts where recovery suits have been filed by the creditors against
the company.
v) Cases of companies those were ready to be referred to BIFR, DRT, and
Civil Courts.

However, in the above cases, CDR Core Group may after proper review,
recommend cases for consideration on a select basis.

As per the information available (2018), the CDR Cell has approved the
restructuring of stressed loans worth Rs.4 trillion, since its introduction
(2002). Of these, only about Rs.84, 677 crore worth of loans could be settled
through the scheme. About Rs. 1.84 trillion loans exited without solution and
the remaining Rs.1.32 trillion proved to be bad loans, not amenable for
restructuring.

Impact of CDR on the Banking System:

Debt restructuring has turned out to be an issue of concern for the reason that
the amounts involved are leaving an impact on the very stability of the
banking industry. Ideally, the granting of CDR decision and sanctioning
reliefs to the borrower company is a bilateral decision between the banks and
borrower companies. As the prevailing finances of the borrower indicate
operational deficiencies and sickness, the banker’s decision on CDR and
related reliefs to the borrower are valid. From the Banker’s point of view, as
long as the assistance provided to such borrowers had become substandard /
NPA, granting CDR is nurturing the company to become viable and recover
with profitability. Further, if the terms and conditions of the loan, especially
in relation to repayment are not adhered to after a specified period of time,
the account is classified as NPA. If accounts are restructured, then too, the
terms and conditions are not fulfilled. But such accounts are not classified as
NPA.

From an operation perspective, there can be two types of restructured

accounts: the first, those accounts which are restructured and classified as
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NPAs; the second type are those which are restructured, but the asset Financial
Restructuring
classification is retained as standard. In general, an NPA account can be
upgraded when the terms and conditions of the loan are fulfilled by the
borrower. In the case of Restructured Standard Asset (RSA), the original
terms and conditions of assistance are changed. Hence, the issue of the
conditions under which the account can be considered as standard or
upgraded to the standard category becomes pertinent. Banking Guidelines lay
down the broad parameters under which RSA can be treated as a standard.
The second type of RSA, however, attracts more regulatory attention from
RBI, is the potential of the accounts being restructured, at times, repeatedly,
to avoid classification as NPA. The second category posed a moral hazard of
a higher degree.

In view of the above and the lack luster performance of the scheme, it is
learned that the RBI is entertaining the idea of doing away with the scheme
and winding up of the CDR Cell and directed Cell to transfer all pending
cases to the respective lead banks to complete the resolution process,
following the existing law in force. In view of this, a vast majority of cases,
that could not be settled through this window, would now tap the doors of the
National Company Law Tribunal (NCLT) as per the procedure laid down
under Insolvency and Bankruptcy (IBC) Code, 2016.

Activity – 15.2
1. List some of the companies that have bought back its shares recently.
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2. Highlight the merits and demerits of the buyback of shares.
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3. “The CDR Scheme has come very handy to the unscrupulous,” do you
agree?
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317
Emerging Issues
of Finance 15.8 LEVERAGED BUYOUTS
This is a kind of acquiring a controlling interest in the management of the
company. It is a usual practice in the industry to take collateral on the assets
of the company when a loan is extended. When the borrower fails to pay the
interest or repay the loan, the lenders may show interest to acquire the firm
through their right of using collateral. Not only private lenders, but banks and
financial institutions also resort to this kind of practice. Therefore, the act of
acquiring a company, using a loan given, to buy the shares of the company
and thus become the owner of the company. Generally, all the lenders as a
group acquire the majority interest in the company and thus take over. In the
case of Banks, when they lend through a consortium, the consortium will take
care of the process.

Though the practice of Leveraged Buyouts (LBOs) started during the

nineteen fifties, it became popular only during the seventies and eighties of
the twentieth century. As per record, the first LBO is said to have occurred in
1955, when Mc. Lean Industries acquired Pan-Atlantic Steamship Company
in January 1955 and Waterman Steamship Company in May 1955 in the
USA. Many private Equity firms in the USA had resorted to this practice. As
far as India is concerned, this practice is not very popular.

As per the 2016 data, the LBO market in India accounted for about 9% of the
total investment in the corporate sector and only about 3% of the total
number of transactions. Besides, the Companies Act, 2013 prohibits a public
company to provide security for the acquisition of its shares by another
company. This limits the scope for LBOs in India. But RBI has permitted the
lending Banks and Financial Institutions to convert their debt into equity.
Technically speaking offering Equity as collateral will not be possible. It is
also said to be one of the reasons for lack of popularity of this method of
financial restructuring in India.
Basic Features of LBOs:

LBOs as a method of finance involve the following features:

• It is a guarantee ensured by the lender of the strict performance by the

borrower.
• Companies trading on their equity opt for this kind of a model. Purchase
of Assets of the company is done with a heavy dose of debt.
• The loan is secured by the debt of the company.
• This is considered as attractive method for inviting participation by
private equity players.
• LBOs sometimes help in generating cash surpluses.
• Lenders generally expect a strong management and continuous
outperformance.

Though in the American context, LBOs are quoted as the examples for win-
win situation, there will be tremendous pressure on the borrower for better
318 performance. If the business is failing for any exogenous reasons, the
outcome would be the loss of ownership by the promoters and playing into Financial
Restructuring
the hands of the lender. Perhaps, for these reasons, LBOs are not so
successful even in the USA and other advanced countries.

Pre-requisites for LBO Environment:

The practice of LBOs to be successful, there is a kind of environment that

should be present in the corporate sector and also in the economy. Some of
the pre-requisites for this are:

1. The company must have an opportunity where major expenditures can be

deferred. Often it is a company that has gone through a heavy capital
expenditure program and whose plant is modern.
2. For the first few years, cash flows must be dedicated to debt service. If
the company has subsidiary assets that can be sold without adversely
impacting the core business, this may be attractive because the sale of
such assets provides cash for debt service in the initial years.
3. The company must have stable, predictable operating cash flows.
4. The company should have adequate physical assets and/or brand names
which in times of need may lead to cash flows.
5. Highly competent and experienced management is critical to the success
of LBO.

Example:

Modern Manufacturing Ltd. (MML) has four divisions, viz., Chemical,

Cement, Fertilizers, and Food. The Company desires to divest the Food
Division. The assets of this division have a book value of Rs. 240 lakhs. The
replacement value of the assets is Rs. 340 lakhs. If the division is liquidated,
the assets would fetch only Rs. 190 lakhs. MML has decided to sell the
division if it gets Rs. 220 lakhs in cash. Four top divisional executives are
willing to acquire the division through a leveraged buyout. They are able to
come up with only Rs. 6 lakhs in personal capital among them. They
approached a finance consultant for financial assistance for the project.

The finance consultant prepares projections for the Food division on the
assumption that it will be run independently by the four executives. The
consultant works out that cash flow of the division can support debt of Rs.
200 lakhs, it finds a finance company that is willing to lend Rs. 170 lakhs for
the project. It has also located a private investor who is ready to invest Rs. 24
lakhs in the equity of this project. Thus, the Food division of MML is
acquired by an independent company run by the four key executives, which is
funded through debt to the tune of Rs. 170 lakh and equity participation of
Rs. 30 lakhs.

In the above case, two forms of funds are employed; debt (Rs.170 lakh), and
equity (Rs.30 lakh). Thus, LBO permits going private with only moderate
equity. The assets of the acquired division are used to secure a large amount
of debt. The equity holders are, of course, residual owners. If things move as
per plans and the debt is serviced according to schedule, after 5 years they
will own a healthy company with a moderate debt. In any LBO, the first few 319
Emerging Issues
of Finance years are the key. If the company can repay debt regularly, the interest burden
declines, resulting in improved operating earnings.
Two types of risk are involved in LBO. These are business risk arising out of
the unsatisfactory performance of the company and the consequent failure to
service the debt, and interest rate risk arising out of changing interest rates
which may, in case of sharp rise, involve an increased financial burden.
Thus, the equity owners are playing a high-risk game and the principle of
leverage being a double-edged weapon becomes evident. Another potential
problem with the need to service debt is the focus on short-run profitability.
This may have a telling effect on the long-term survival and success of the
organization.

15.9 EQUITY RESTRUCTURING

This is also known as the reorganization of capital. In order to strengthen the
Equity base, some companies follow this kind of practice. It may be in the
form of a stock dividend, stock split, spin-off, rights offering, and
reorganization of equity capital. This is mainly done to boost up the
confidence of equity shareholders. Sometimes, the shareholders may feel that
the prices of their shares are no longer reflective of the earning capacity of
the company and the market is misinformed. As a measure of correcting the
position, shareholders are prepared for any kind of restructuring.
The following are the reasons for shareholders agreeing to the reorganization
of their capital:

• Correction of overcapitalization.
• Providing it as the liquidity option through buyback.
• For increasing the efficiency of the organization.
• To create confidence among the equity shareholders and the stock
market that everything is in order.
• To wipe out accumulated losses.
• To write off unrecognized expenditure.
• To ensure proper debt-equity ratio.
• To raise fresh resources.

Section-66 of the Companies Act, 2013, provides for the reduction of share
capital by a company if the company is authorized to do so under its Articles
of Association. The company opting to reduce the capital may do it for any of
the reasons and in the manner preferred by it. Some of these are:

• Extinguish or reduce the liability on any of its shares in respect of the

share capital not paid up.
• Extinguish or reduce liability either with or without extinction.
• Cancel any paid-up share capital which is lost, or unrepresented by
available assets.
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 Pay-off any paid-up share capital, which is in excess of the requirements Financial
• Restructuring
of the company.

15.10 DIVESTITURE
This is considered yet another form of corporate restructuring, having
financial implication. Divestiture is an act of selling or disposing off a part of
the business, a branch, factory, business location, etc. Generally, companies
resort to this practice as a measure of excess load shedding. Sometimes, they
may do it when it becomes operationally infeasible or inconvenient. There
are many examples of divestment in the Indian Corporate Sector. They
include the sale of cement plants to India Cements by Coromandel Fertilizers
and MRPL a petrochemicals Joint Venture with HPCL, so as to strengthen its
core business.
As per the study conducted by Earnest Young (EY), during June 2020, more
than two-thirds of the Indian Companies (about 67%) are planning to divest
their business operations in the next two years. The study reported that many
companies are thinking of this measure due to the difficult times created by
the Covid-19 pandemic. This has been necessitated to raise new capital,
reduce debt levels and cope up with the advancements in technology. In
addition, the following can be said to be the reasons for divesture by a
company:
• To refocus on the core business. Companies earlier might have gone for
related and unrelated diversification and now wants to stick to the core
area of operations, in which they are strong enough.
• To meet the future technological changes. When the company believes
that the future changes in technology are going to be diverse and far-
reaching, they may now redefine their own business and the same may
lead to divestment.
• To strengthen operational ability. In times of intense competition,
business firms have no other option, except to strengthen their
operational efficiency. In order to check the diffusion of their ability in
operation. Companies may dispose of units, that are considered extra.
• To raise additional resources for other projects or better investment may
also happen when the company is in financial difficulty or distress.
• To reduce or mitigate political instabilities. Companies operating in more
than one country like the MNCs, face these problems. When the
economy in which they are located is instable either economically or
politically, a decision may be taken to withdraw from such country.
Sometimes, changes in the Government and their policies also may force
companies to divest. The withdrawal of investments by Pepsico, HP,
Macy’s, etc. from Myanmar is often cited as an example of this kind.

15.11 DISINVESTMENT
Disinvestment is another form of financial restructuring followed by the
companies. This is simply withdrawing the investment already made in the
321
Emerging Issues
of Finance company by way of sale of shares, sale of plant, or assets. Divestiture can be
considered as one form of disinvestment. The term ‘disinvestment’ has come
to prominence in India, when the Government of India and some of the State
Governments started withdrawing their investments made in the Public
Sector Enterprises (PSEs). Though the Government of India was entertaining
this idea since the Nineteen Eighties, the process got momentum since 1991-
92, the year from which Economic Reforms were started. The Government
has also formulated a policy of ‘Disinvestment’ for this purpose.
The PSEs that were subjected to the policy of Disinvestment included
BALCO, Hindustan Zinc, IPCL, VSNL, ONGC, HPCL, and many others.
Every year, in order to raise resources for financing the Central Budget, the
Government is setting the targets and is trying to sell away its share in PSEs
from time to time. As per the information available, between 2014 and 2018,
the Central Government has mobilized about Rs.1,95,000 crore through this
process. The total sum collected from 1991-92 to 2019-20 stood at
Rs.3,47,439 crore. In the Budget for 2020-21, the Government of India has
put a target of Rs.2.14 lakh crore, which included Rs.90,000 crore proposed
to be mustered by way of selling the shares in LIC, IDBI Bank, and many
other Banks and Financial Institutions.

15.12 CHANGES IN THE TOTAL CAPITAL

STRUCTURE
Thus far we have discussed about the restructuring plans for the individual
sources of finance. In the ultimate analysis, firms may go for total change in
the existing capital structure, which may involve buyback of share capital,
debt reduction, conversion of debt or preference shares into equity and all
other possibilities. There was a situation during eighties to opt for higher
doses of debt to take advantage of the tax deduction. In those days, the
interest rates were also higher and there used to be a significant gain in
employing debt capital. After the economic reforms are being implemented
since 1990s and considerable decline in the interest rates, firms have started
infusing equity through vibrant capital market and profitability being
handsome, return on equity turned very attractive.

Particularly in the current decade of two thousand ten to two thousand

twenty, more and more firms are repaying their debts and trying to convert
themselves as 100% Equity owned, and zero debt. The list of such companies
from India included Hindustan Lever, HDFC Life Insurance, SBI Life
Insurance, ICICI Prudential Life Insurance, Bajaj Holdings and Investments,
SKF India, Maharashtra Scooters, CDSL, and Lakshmi Machine Works
(LMWL). Usually, those companies that possess strong financials are
choosing this route. While it is advantageous to improve upon the return on
equity; companies with zero debt tend to pay higher taxes and thus higher
cost of capital.
Usually, total reconstruction plans involve the following three steps:
i) Determine the total valuation of the company by the capitalization of
322 prospective earnings. For example, if future earnings of a company are
 expected to be Rs.4 lakh, and the overall capitalization rate of similar Financial
Restructuring
companies average is 10 percent then applying the valuation technique of
perpetuity, the total value of Rs.40 lakh would be set for the company.
�
Perpetuity is valued as � = �
ii) Determine a new capital structure for the company to reduce fixed
charges so that there will be an adequate coverage margin. To reduce
these fixed charges, the total debt of the firm is reduced by shifting to
income bonds, preferred stock, and common stock. In addition, the terms
of the debt may be changed. If it appears that the reconstructed company
will need new financing in the future, a more conservative ratio of debt
to equity may be thought of so as to provide for future financial
flexibility.
iii) Valuation of the old securities and their exchange for new securities. In
general, all senior claims on assets must be settled in full before a junior
claim can be settled. In the exchange process, bondholders must receive
the par value of their bonds in another security before there can be any
distribution to preferred stockholders. The total valuation figure arrived
at in step (i) sets an upper limit on the number of securities that can be
issued.
The existing capital structure of a company undergoing reconstruction is
given as under:
Rs. in Lakh
Debentures 18
Subordinated debentures 6
Preferred stock 12
Common stock equity (book value) 20
Total 56

If the total valuation of the company is to be Rs.40 lakh, the following could
be the new capital structure:

Rs. in Lakh
Debentures 6

Subordinated debentures 12

Preferred stock 6

Common stock equity (book value) 16

Total 46

After deciding about the ‘appropriate’ capital structure for the company, the
new securities have got to be allocated. Thus, the debenture holders exchange
their Rs.18 lakh in debentures for Rs.6 lakh in new debentures and Rs.12 lakh
in income bonds, that the subordinated debenture holders exchange their Rs.6
lakh in securities for preferred stock, and those preferred stockholders
exchange their securities for Rs.12 lakh of common stockholders would then
323
Emerging Issues
of Finance be entitled to Rs.4 lakh in stock in the reconstructed company or 25 percent
of the total common stock of the reconstructed company.

Thus, the exchange claim is settled in full before a junior claim is settled. In a
harsh reconstruction, debt instruments may be exchanged for common stock
in the newly reconstructed company and the old common stock may be
eliminated completely. Much depends on negotiation between the
management and claimholders.

15.13 SUMMARY
The financial restructuring is a part of corporate restructuring. Businesses
may plan for total restructuring or may only take up in small measure.
Expansion of business operations may happen through related and unrelated
diversification. Takeovers, Mergers and Acquisitions are the major methods
of expansion in the process of Corporate Restructuring. One of the major
aspects corporate restructuring is the Financial Restructuring.
There are many methods that can be followed to restructure the finances of a
company, which may include Buyback of Shares, Conversion of Debt into
Equity, Debt Restructuring, Leveraged Buyouts, Equity Restructuring,
Divestiture, Disinvestment and finally Changes in the Entire Capital
Structure. Whatever method is followed, it should contribute to the
maximization of the value of the firm.

15.14 KEY WORDS

Corporate Restructuring is the process undertaken to change the complexion
of the business either through takeovers, mergers, acquisitions or through
financial changes.
Financial Restructuring is the process of reorganizing the finances of the
business. This may cover divestment, disinvestment, etc.
Debt Restructuring refers to the adjustment of repayment schedules, subject
to certain guidelines in force from time to time.
Leveraged Buyout is the act of acquiring a company using the loan given to
it to acquire the shares of the company and thus become the owner.
Equity Restructuring is a practice involving the actions like declaration of
stock dividend, stock split, spin off, etc.
Divestiture is an act of selling or disposing off a part of the business like a
branch office, unit, factory, office, service center, etc.
Disinvestment is the process of withdrawing investment already made in the
company by way of sale of assets, shares, etc.

15.15 SELF ASSESSMENT QUESTIONS

1. Distinguish between Corporate Restructuring and Financial
Restructuring.
2. What are the provisions of the Companies Act, 2013, relating to Buyback
324 of Shares?
3. Do you consider Buyback as a good option? Financial
Restructuring
4. Explain the salient points of SEBI (Buyback of Securities) Regulations,
2018.
5. Illustrate with examples the process of conversion of Debt into Equity.
6. Highlight the impact of the Corporate Debt Restructuring Scheme on the
Indian Banking System.
7. To what extent LBOs can be considered a viable option for Financial
Restructuring in the Indian context?
8. Identify the conditions suitable for Equity Restructuring.
9. Explain the concept of Divestiture. Do you think that this is the suitable
option in this pandemic situation like Covid?
10. “It is Myopic to disinvest the share of the Government in PSEs” – Argue.
11. Following is the Capital Structure of XYZ company:
i) Share Capital (Equity Shares of Rs.100 each, 1000 crore
partially paid up Rs.50 per share)
ii) 11% Debentures (Rs.1,000 per Debenture) 500 crore
iii) 12% Preference Shares (Rs.1,000 per share) 500 crore
iv) Bank Loans (@ 13% Interest) 500 crore
v) Other short-term Borrowings 300 crore

Other Information:
a) Earnings Before Interest and Taxes (EBIT) on the 100 crores
Turnover of Rs. 2000 crore
b) Tax Rate-applicable to the company 30%
c) The Income of the company is not consistent over the years, and
it got badly affected due to recession prevailing in the Economy.

What kind of Financial Restructuring plan, do you suggest to XYZ

company. You need not limit to only single option. You can work out
Three Plans like Plan-A, Plan-B and Plan-C.

15.16 FURTHER READINGS

1. Chandra, Prasanna. 2019, Financial Management, Theory and Practice,
Mc Graw-Hill, New Delhi
2. Pandey. I.M., 2021, Financial Management, Pearson Education India,
New Delhi
3. Sheridan Titman, Arthur J. Keown, and John D. Martin, 2019, Financial
Management: Principles and Applications, Pearson Education India,
New Delhi.
4. M.Y. Khan. M. Y and Jain. P.K., 2018, Financial Management, McGraw
Hill Education, New Delhi
5. Eugene F. Brigham, Joel F. Huston, 2018, Fundamental of Financial
Management, Cengage Learning India, New Delhi.
325
Emerging Issues APPENDIX: TABLES
of Finance
Table-1
Present value of Re. 1 to be received after ‘n’ years = 1/ (1 + r)n.

Interest Rate per Year

No.of
1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
Years
1 .990 .980 .971 .962 .952 .943 .935 .926 .917 .909 .901 .893 .885 .877 .870
2 .980 .961 .943 .925 .907 .890 .873 .857 .842 .826 .812 .797 .783 .769 .756
3 .971 .942 .915 .889 .864 .840 .816 .794 .772 .751 .731 .712 .693 .675 .658
4 .961 .924 .888 .855 .823 .792 .763 .735 .708 .683 .659 .636 .613 .592 .572
5 .951 .906 .863 .822 .784 .747 .713 .681 .650 .621 .593 .567 .543 .519 .497

6 .942 .888 .837 .790 .746 .705 .666 .630 .596 .564 .535 .507 .480 .456 .432
7 .933 .871 .813 .760 .711 .665 .623 .583 .547 .513 .482 .452 .425 .400 .376
8 .923 .853 .789 .731 .677 .627 .582 .540 .502 .467 .434 .404 .376 .351 .327
9 .914 .837 .766 .703 .645 .592 .544 .500 .460 .424 .391 .361 .333 .308 .284
10 .905 .820 .744 .676 .614 .558 .508 .463 .422 .386 .352 .322 .295 .270 .247

11 .896 .804 .722 .650 .585 .527 .475 .429 .388 .350 .317 .287 .261 .237 .215
12 .887 .788 .701 .625 .557 .497 .444 .397 .356 .319 .286 .257 .231 .208 .187
13 .879 .773 .681 .601 .530 .469 .415 .368 .326 .290 .258 .229 .204 .182 .163
14 .870 .758 .661 .577 .505 .442 .388 .340 .299 .263 .232 .205 .181 .160 .141
15 .861 .743 .642 .555 .481 .417 .362 .315 .275 .239 .209 .183 .160 .140 .123

16 .853 .728 .623 .534 .458 .394 .339 .292 .252 .218 .188 .163 .141 .123 .107
17 .844 .714 .605 .513 .436 .371 .317 .270 .231 .198 .170 .146 .125 .108 .093
18 .836 .700 .587 .494 .416 .350 .296 .250 .212 .180 .153 .130 .111 .095 .081
19 .828 .686 .570 .475 .396 .331 .277 .232 .194 .164 .138 .116 .098 .083 .070
20 .820 .673 .554 .456 .377 .312 .258 .215 .178 .149 .124 .104 .087 .073 .061

Interest Rate perYear

No.of
16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%
Years
1 .862 .855 .847 .840 .833 .826 .820 .813 .806 .800 .794 .787 .781 .775 .769
2 .743 .731 .718 .706 .694 .683 .672 .661 .650 .640 .630 .620 .610 .601 .592
3 .641 .624 .609 .593 .579 .564 .551 .537 .524 .512 .500 .488 .477 .466 .455
4 .552 .534 .516 .499 .482 .467 .451 .437 .423 .410 .397 .384 .373 .361 .350
5 .476 .456 .437 .419 .402 .386 .370 .355 .341 .328 .315 .303 .291 .280 .269

6 .410 .390 .370 .352 .335 .319 .303 .289 .275 .262 .250 .238 .227 .217 .207
7 .354 .333 .314 .296 .279 .263 .249 .235 .222 .210 .198 .188 .178 .168 .159
8 .305 .285 .266 .249 .233 .218 .204 .191 .179 .168 .157 .148 .139 .130 .123
9 .263 .243 .225 .209 .194 .180 .167 .155 .144 .134 .125 .116 .108 .101 .094
10 .227 .208 .191 .176 .162 .149 .137 .126 .116 .107 .099 .092 .085 .078 .073

11 .195 .178 .162 .148 .135 .123 .112 .103 .094 .086 .079 .072 .066 .061 .056
12 .168 .152 .137 .124 .112 .102 .092 .083 .076 .069 .062 .057 .052 .047 .043
13 .145 .130 .116 .104 .093 .084 .075 .068 .061 .055 .050 .045 .040 .037 .033
14 .125 .111 .099 .088 .078 .069 .062 .055 .049 .044 .039 .035 .032 .028 .025
15 .108 .095 .084 .074 .065 .057 .051 .045 .040 .035 .031 .028 .025 .022 .020

16 .093 .081 .071 .062 .054 .047 .042 .036 .032 .028 .025 .022 .019 .017 .015
17 .080 .069 .060 .052 .045 .039 .034 .030 .026 .023 .020 .017 .015 .013 .012
18 .069 .059 .051 .044 .038 .032 .028 .024 .021 .018 .016 .014 .012 .010 .009
19 .060 .051 .043 .037 .031 .027 .023 .020 .017 .014 .012 .011 .009 .008 .007
20 .051 .043 .037 .031 .026 .022 .019 .016 .014 .012 .010 .008 .007 .006 .005

Note: For example, if the interest rate is 10% per year, the present value of Re.1 received at year 5 is Re. 0.621.

326
 Table-2 Financial
�−
� Restructuring
(���)�
������� ����� �� �� ������� �� ��. � ��� ′�′ ������� =
�
Interest Rate per Year
No. of
1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
Years

1 .990 .980 .971 .962 .952 .943 .935 .926 .917 .909 .901 .893 .885 .877 .870
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352

6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019

11 10.37 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234
12 11.26 10.58 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421
13 12.13 11.35 10.63 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583
14 13.00 12.11 11.30 10.56 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724
15 13.87 12.85 11.94 11.12 10.38 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847

16 14.72 13.58 12.56 11.65 10.84 10.11 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954
17 15.56 14.29 13.17 12.17 11.27 10.48 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047
18 16.40 14.99 13.75 12.66 11.69 10.83 10.06 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128
19 17.23 15.68 14.32 13.13 12.09 11.16 10.34 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198
20 18.05 16.35 14.88 13.59 12.46 11.47 10.59 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259

Interest Rate per Year

No. of
16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%
Years

1 1.160 1.170 1.180 1.190 1.200 1.210 1.220 1.230 1.240 1.250 1.260 1.270 1.280 1.290 1.300
2 1.346 1.369 1.392 1.416 1.440 1.464 1.488 1.513 1.538 1.563 1.588 1.613 1.638 1.664 1.690
3 1.561 1.602 1.643 1.685 1.728 1.772 1.816 1.861 1.907 1.953 2.000 2.048 2.097 2.147 2.197
4 1.811 1.874 1.939 2.005 2.074 2.144 2.215 2.289 2.364 2.441 2.520 2.601 2.684 2.769 2.856
5 2.100 2.192 2.288 2.386 2.488 2.594 2.703 2.815 2.932 3.052 3.176 3.304 3.436 3.572 3.713

6 2.436 2.565 2.700 2.840 2.986 3.138 3.297 3.463 3.635 3.815 4.002 4.196 4.398 4.608 4.827
7 2.826 3.001 3.185 3.379 3.583 3.797 4.023 4.259 4.508 4.768 5.042 5.329 5.629 5.945 6.275
8 3.278 3.511 3.759 4.021 4.300 4.595 4.908 5.239 5.590 5.960 6.353 6.768 7.206 7.669 8.157
9 3.803 4.108 4.435 4.785 5.160 5.560 5.987 6.444 6.931 7.451 8.005 8.595 9.223 9.893 10.60
10 4.411 4.807 5.234 5.695 6.192 6.728 7.305 7.926 8.594 9.313 10.09 10.92 11.81 12.76 13.79

11 5.117 5.624 6.176 6.777 7.430 8.140 8.912 9.749 10.66 11.64 12.71 13.86 15.11 16.46 17.92
12 5.936 6.580 7.288 8.064 8.916 9.850 10.87 11.99 13.21 14.55 16.01 17.61 19.34 21.24 23.30
13 6.886 7.699 8.599 9.596 10.70 11.92 13.26 14.75 16.39 18.19 20.18 22.36 24.76 27.39 30.29
14 7.988 9.007 10.15 11.42 12.84 14.42 16.18 18.14 20.32 22.74 25.42 28.40 31.69 35.34 39.37
15 9.266 10.54 11.97 13.59 15.41 17.45 19.74 22.31 25.20 28.42 32.03 36.06 40.56 45.59 51.19

16 10.75 12.33 14.13 16.17 18.49 21.11 24.09 27.45 31.24 35.53 40.36 45.80 51.92 58.81 66.54
17 12.47 14.43 16.67 19.24 22.19 25.55 29.38 33.76 38.74 44.41 50.85 58.17 66.46 75.86 86.50
18 14.46 16.88 19.67 22.90 26.62 30.91 35.85 41.52 48.04 55.51 64.07 73.87 85.07 97.86 112.5
19 16.78 19.75 23.21 27.25 31.95 37.40 43.74 51.07 59.57 69.39 80.73 93.81 108.9 126.2 146.2
20 19.46 23.11 27.39 32.43 38.34 45.26 53.36 62.82 73.86 86.74 101.7 119.1 139.4 162.9 190.0

327
Emerging Issues
of Finance
Table-3: Compound Amount of Re. 1 at the end of ‘n’ periods = (1 + r)n.
Interest Rate per Year
No.of
1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15%
Years
1 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.100 1.110 1.120 1.130 1.140 1.150
2 1.020 1.040 1.061 1.082 1.102 1.124 1.145 1.166 1.188 1.210 1.232 1.254 1.277 1.300 1.323
3 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331 1.368 1.405 1.443 1.482 1.521
4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464 1.518 1.574 1.630 1.689 1.749
5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.685 1.762 1.842 1.925 2.011

6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.772 1.870 1.974 2.082 2.195 2.313
7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.949 2.076 2.211 2.353 2.502 2.660
8 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144 2.305 2.476 2.658 2.853 3.059
9 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 2.558 2.773 3.004 3.252 3.518
10 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 2.594 2.839 3.106 3.395 3.707 4.046

11 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 3.152 3.479 3.836 4.226 4.652
12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138 3.498 3.896 4.335 4.818 5.350
13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 3.883 4.363 4.898 5.492 6.153
14 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.797 4.310 4.887 5.535 6.261 7.076
15 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 4.785 5.474 6.254 7.138 8.137

16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 5.311 6.130 7.067 8.137 9.358
17 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4.328 5.054 5.895 6.866 7.986 9.276 10.76
18 1.196 1.428 1.702 2.026 2.407 2.854 3.380 3.996 4.717 5.560 6.544 7.690 9.024 10.58 12.38
19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 7.263 8.613 10.20 12.06 14.23
20 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.727 8.062 9.646 11.52 13.74 16.37

Interest Rate per Year

No. of
Years 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 26% 27% 28% 29% 30%

1 1.160 1.170 1.180 1.190 1.200 1.210 1.220 1.230 1.240 1.250 1.260 1.270 1.280 1.290 1.300
2 1.346 1.369 1.392 1.416 1.440 1.464 1.488 1.513 1.538 1.563 1.588 1.613 1.638 1.664 1.690
3 1.561 1.602 1.643 1.685 1.728 1.772 1.816 1.861 1.907 1.953 2.000 2.048 2.097 2.147 2.197
4 1.811 1.874 1.939 2.005 2.074 2.144 2.215 2.289 2.364 2.441 2.520 2.601 2.684 2.769 2.856
5 2.100 2.192 2.288 2.386 2.488 2.594 2.703 2.815 2.932 3.052 3.176 3.304 3.436 3.572 3.713

6 2.436 2.565 2.700 2.840 2.986 3.138 3.297 3.463 3.635 3.815 4.002 4.196 4.398 4.608 4.827
7 2.826 3.001 3.185 3.379 3.583 3.797 4.023 4.259 4.508 4.768 5.042 5.329 5.629 5.945 6.275
8 3.278 3.511 3.759 4.021 4.300 4.595 4.908 5.239 5.590 5.960 6.353 6.768 7.206 7.669 8.157
9 3.803 4.108 4.435 4.785 5.160 5.560 5.987 6.444 6.931 7.451 8.005 8.595 9.223 9.893 10.60
10 4.411 4.807 5.234 5.695 6.192 6.728 7.305 7.926 8.594 9.313 10.09 10.92 11.81 12.76 13.79

11 5.117 5.624 6.176 6.777 7.430 8.140 8.912 9.749 10.66 11.64 12.71 13.86 15.11 16.46 17.92
12 5.936 6.580 7.288 8.064 8.916 9.850 10.87 11.99 13.21 14.55 16.01 17.61 19.34 21.24 23.30
13 6.886 7.699 8.599 9.596 10.70 11.92 13.26 14.75 16.39 18.19 20.18 22.36 24.76 27.39 30.29
14 7.988 9.007 10.15 11.42 12.84 14.42 16.18 18.14 20.32 22.74 25.42 28.40 31.69 35.34 39.37
15 9.266 10.54 11.97 13.59 15.41 17.45 19.74 22.31 25.20 28.42 32.03 36.06 40.56 45.59 51.19

16 10.75 12.33 14.13 16.17 18.49 21.11 24.09 27.45 31.24 35.53 40.36 45.80 51.92 58.81 66.54
17 12.47 14.43 16.67 19.24 22.19 25.55 29.38 33.76 38.74 44.41 50.85 58.17 66.46 75.86 86.50
18 14.46 16.88 19.67 22.90 26.62 30.91 35.85 41.52 48.04 55.51 64.07 73.87 85.07 97.86 112.5
19 16.78 19.75 23.21 27.25 31.95 37.40 43.74 51.07 59.57 69.39 80.73 93.81 108.9 126.2 146.2
20 19.46 23.11 27.39 32.43 38.34 45.26 53.36 62.82 73.86 86.74 101.7 119.1 139.4 162.9 190.0

Note: For example, if the interest rate is 10% per year, the investment of Re.1 today will be worth Rs.1.611 at year 5.

328
 Table-4 Financial
Restructuring
Compound amount of an annuity of Re. 1 at
the end of ‘n’ periods
(1+r)n +1
FVIFA (r, n) =
n/i 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0%
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 2.0100 2.0200 2.0300 2.0400 2.0500 2.0600 2.0700 2.0800 2.0900 2.1000
3 3.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3.2464 3.2781 3.3100
4 4.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 4.5061 4.5731 4.6410
5 5.1010 5.2040 5.3091 5.4163 5.5256 5.6371 5.7507 5.8666 5.9847 6.1051
6 6.1520 6.3081 6.4684 6.6330 6.8019 6.9753 7.1533 7.3359 7.5233 7.7156
7 7.2135 7.4343 7.6625 7.8983 8.1420 8.3938 8.6540 8.9228 9.2004 9.4872
8 8.2857 8.5830 8.8923 9.2142 9.5491 9.8975 10.2598 10.6366 11.0285 11.4359
9 9.3685 9.7546 10.1591 10.5828 11.0266 11.4913 11.9780 12.4876 13.0210 13.5795
10 10.4622 10.9497 11.4639 12.0061 12.5779 13.1808 13.8164 14.4866 15.1929 15.9374
11 11.5668 12.1687 12.8078 13.4864 14.2068 14.9716 15.7836 16.6455 17.5603 18.5312
12 12.6825 13.4121 14.1920 15.0258 15.9171 16.8699 17.8885 18.9771 20.1407 21.3843
13 13.8093 14.6803 15.6178 16.6268 17.7130 18.8821 20.1406 21.4953 22.9534 24.5227
14 14.9474 15.9739 17.0863 18.2919 19.5986 21.0151 22.5505 24.2149 26.0192 27.9750
15 16.0969 17.2934 18.5989 20.0236 21.5786 23.2760 25.1290 27.1521 29.3609 31.7725
16 17.2579 18.6393 20.1569 21.8245 23.6575 25.6725 27.8881 30.3243 33.0034 35.9497
17 18.4304 20.0121 21.7616 23.6975 25.8404 28.2129 30.8402 33.7502 36.9737 40.5447
18 19.6147 21.4123 23.4144 25.6454 28.1324 30.9057 33.9990 37.4502 41.3013 45.5992
19 20.8109 22.8406 25.1169 27.6712 30.5390 33.7600 37.3790 41.4463 46.0185 51.1591
20 22.0190 24.2974 26.8704 29.7781 33.0660 36.7856 40.9955 45.7620 51.1601 57.2750
21 23.2392 25.7833 28.6765 31.9692 35.7193 39.9927 44.8652 50.4229 56.7645 64.0025
22 24.4716 27.2990 30.5368 34.2480 38.5052 43.3923 49.0057 55.4568 62.8733 71.4027
23 25.7163 28.8450 32.4529 36.6179 41.4305 46.9958 53.4361 60.8933 69.5319 79.5430
24 26.9735 30.4219 34.4265 39.0826 44.5020 50.8156 58.1767 66.7648 76.7898 88.4973
25 28.2432 32.0303 36.4593 41.6459 47.7271 54.8645 63.2490 73.1059 84.7009 98.3471
26 29.5256 33.6709 38.5530 44.3117 51.1135 59.1564 68.6765 79.9544 93.3240 109.1818
27 30.8209 35.3443 40.7096 47.0842 54.6691 63.7058 74.4838 87.3508 102.7231 121.0999
28 32.1291 37.0512 42.9309 49.9676 58.4026 68.5281 80.6977 95.3388 112.9682 134.2099
29 33.4504 38.7922 45.2189 52.9663 62.3227 73.6398 87.3465 103.9659 124.1354 148.6309
30 34.7849 40.5681 47.5754 56.0849 66.4388 79.0582 94.4608 113.2832 136.3075 164.4940

329
Emerging Issues
of Finance
n/i 12.0% 14.0% 15.0% 16.0% 18.0% 20.0% 24.0% 28.0% 32.0% 36.0%
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 2.1200 2.1400 2.1500 2.1600 2.1800 2.2000 2.2400 2.2800 2.3200 2.3600
3 3.3744 3.4396 3.4725 3.5056 3.5724 3.6400 3.7776 3.9184 4.0624 4.2096
4 4.7793 4.9211 4.9934 5.0665 5.2154 5.3680 5.6842 6.0156 6.3624 6.7251
5 6.3528 6.6101 6.7424 6.8771 7.1542 7.4416 8.0484 8.6999 9.3983 10.1461
6 8.1152 8.5355 8.7537 8.9775 9.4420 9.9299 10.9801 12.1359 13.4058 14.7987
7 10.0890 10.7305 11.0668 11.4139 12.1415 12.9159 14.6153 16.5339 18.6956 21.1262
8 12.2997 13.2328 13.7268 14.2401 15.3270 16.4991 19.1229 22.1634 25.6782 29.7316
9 14.7757 16.0853 16.7858 17.5185 19.0859 20.7989 24.7125 29.3692 34.8953 41.4350
10 17.5487 19.3373 20.3037 21.3215 23.5213 25.9587 31.6434 38.5926 47.0618 57.3516
11 20.6546 23.0445 24.3493 25.7329 28.7551 32.1504 40.2379 50.3985 63.1215 78.9982
12 24.1331 27.2707 29.0017 30.8502 34.9311 39.5805 50.8950 65.5100 84.3204 108.4375
13 28.0291 32.0887 34.3519 36.7862 42.2187 48.4966 64.1097 84.8529 112.3030 148.4750
14 32.3926 37.5811 40.5047 43.6720 50.8180 59.1959 80.4961 109.6117 149.2399 202.9260
15 37.2797 43.8424 47.5804 51.6595 60.9653 72.0351 100.8151 141.3029 197.9967 276.9793
16 42.7533 50.9804 55.7175 60.9250 72.9390 87.4421 126.0108 181.8677 262.3557 377.6919
17 48.8837 59.1176 65.0751 71.6730 87.0680 105.9306 157.2534 233.7907 347.3095 514.6610
18 55.7497 68.3941 75.8364 84.1407 103.7403 128.1167 195.9942 300.2521 459.4485 700.9389
19 63.4397 78.9692 88.2118 98.6032 123.4135 154.7400 244.0328 385.3227 607.4721 954.2769
20 72.0524 91.0249 102.4436 115.3797 146.6280 186.6880 303.6006 494.2131 802.8631 1298.8166
21 81.6987 104.7684 118.8101 134.8405 174.0210 225.0256 377.4648 633.5927 1060.7793 1767.3906
22 92.5026 120.4360 137.6316 157.4150 206.3448 271.0307 469.0563 811.9987 1401.2287 2404.6512
23 104.6029 138.2970 159.2764 183.6014 244.4868 326.2369 582.6298 1040.3583 1850.6219 3271.3256
24 118.1552 158.6586 184.1678 213.9776 289.4945 392.4842 723.4610 1332.6586 2443.8209 4450.0029
25 133.3339 181.8708 212.7930 249.2140 342.6035 471.9811 898.0916 1706.8031 3226.8436 6053.0039
26 150.3339 208.3327 245.7120 290.0883 405.2721 567.3773 1114.6336 2185.7079 4260.4336 8233.0853
27 169.3740 238.4993 283.5688 337.5023 479.2211 681.8528 1383.1457 2798.7061 5624.7723 11197.9960
28 190.6989 272.8892 327.1041 392.5028 566.4809 819.2233 1716.1007 3583.3438 7425.6994 15230.2745
29 214.5828 312.0937 377.1697 456.3032 669.4475 984.0680 2128.9648 4587.6801 9802.9233 20714.1734
30 241.3327 356.7868 434.7451 530.3117 790.9480 1181.8816 2640.9164 5873.2306 12940.8587 28172.2758

330