CORPORATE DEBT RESTRUCTURING

OFDECCAN CHRONICLE

STRATEGIC FINANCIAL MANAGEMENT – TERM V

Shubhangi Saraf – C049Saurabh Dhole – D023 Swati Muchchal – D038Vamsi Krishna Reddy – E062

THE BUSINESS

Mumbai, Delhi, Kolkata and London

Delhi, Mumbai, Hyderabad, Bangalore and Chennai

Primarily in the state of Andhra Pradesh

DCHL also operates the following divisions (which earlier were operated through wholly owned subsidiaries and since merged

with the company with effect from 1-04-2010):

 Store offering consumer lifestyle

products

 Hyderabad team of IPL

HISTORY

INDUSTRYFacts

• India is the second largest publisher of newspapers in the world• The total circulation of newspapers : 5,79,53,373.•Industry has grown at a CAGR of 13% over the last five years•INR 174 billion industry in 2011 despite deceleration

Pressures on Print

• Battling for a place in the media mix•Electronic media •Rush and time pressure •Natural “preference for print” eroding – TV viewing time, Internet, etc..•Combine traditional advantages with new flexibility, speed, quality.

Reasons for Growth

• Printing ink industry: the volume & value are increasing by 10-15 %, the average price not increasing•Rise in population & literacy • Readers are exercising choices; leading to increased habit of reading 2 newspapers among current readers•Companies to increase Media Ad spend

Technology

• Faster turnaround•Shorter runs•No more “buy and store”•Less cost!•Low inventory levels

FINANCIALS

March 2012 Rs. Crs

Sales Turnover 210.16

Operating profit 30.39

Net Profit 6.08

Interest payments

18.93

Dividend -

Earnings per Share

.29

March 2011 Rs. Crs

Share Capital 48.69

Reserves 1231.45

Debt 313.12

Net Block 863.88

Net Current Assets

666.55

Income Statement Balance Sheet

THE BUSINESS

Operational Strategies

• Capturing the southern states• Kochi and Coimbatore first• Thiruvananthapuram is next• Deccan Chargers – Brand Enhancement• Store Consolidation for Odyssey• Amalgamating Subsidiaries• Diversifying into Aviation

Industry Forces At Play

• Growing economy• Higher literacy• High income levels• Rising input costs• Technology

Financial Strategies

• No Dividend – Buyback and Liquidity conservation• Debt Restructuring

Revenue Streams

• Advertising constitutes about 93% of revenues• Rise in advertisement tariffs by 20%

WEAKENING OF THE BUSINESSInterest Coverage Ratio Operating Profit Margin

Cash Flow • Lost money during FY04-05• Cash Flow from Operations jumped during FY08-11• High Cash Outflow from Investing activities• High Cash Inflow from Financing Activities during FY04-08

• High amounts of debt taken

EXPOSURE LEVELSPrivate Sector Banks Public Sector Banks

NBFCs • Total Exposure = Rs 5000 Crores• PSU Banks’ Exposure = Rs. 3800 Crores• HDFC’s timely exit from Deccan Chronicle’s books• ICICI, Axis and Canara Banks classify as NPA• While for most others it is still ‘Standard’

RATINGS DOWNGRADE

Despite a Cash/FD balance of Rs 372 crores on its books, it still failed to honour its obligations. DCHL has not offered any explanation regarding this.

STOCK PRICE CHART

QUESTIONING CARE

WINDING UP PETITION IFCI

IPL TEAM Deccan's move into buying the franchise of the Deccan

Chargers - which seemed like a good investment initially given the rising team valuations and hype created - came back to haunt the company later.

Huge debt and no financial clarity or transparency over financial health

People cautious of buying the team

Particulars Rs.

Capital Invested in DCSVL

500mn

Liabilities 4.2bn

Turnover 566mn

Loss in DCSVL 418mnSource : Annual Report, 2010

IPL TEAM

CORPORATE DEBT RESTRUCTURING

What? Relief to distressed borrowers

Why?

• To support continuing economic recovery• A helping hand to fundamentally viable businesses• Avoid NPAs, loss-provisioning and protect bottom-line• Increase ability of borrower to meet obligations• Fair and equitable debt repayment to creditors• Ensuring safety of money lent by Banks & FIs

How?

• Extending loan tenures• Putting interest payments on hold• Skipping payments• Converting debt into equity• Issuing fresh term or working capital loans

2001 Corporate Debt Restructuring was evolved

2003 Working Group setup

February, 2003 Guidelines for CDR revised

CDR –THE THREE-TIER STRUCTURE

Standing Forum and Core Group - Representative general body for FIs and banks

• Lay down policies and guidelines• Monitor progress of the restructuring

Empowered Group - EDs of ICICI Bank, IDBI Ltd, SBI as standing members. ED level representatives of institutions exposed

• Decide on individual cases

Cell

• Make the initial scrutiny of the proposals• CDR Cell will proceed to prepare a detailed Rehabilitation Plan

CDR –FAILURE

Two Committee sittings with no result

• Canara Bank was engaged to do the forensic audit of the company

FRAUD ACCUSATIONSKARVY filed a complaint that DCHL resorted to financial fraud invoking provisions under Sections 420 (cheating), 406 (criminal breach of trust), 458 (wrongful restraint) and 471 (passing off forged documents as genuine).

PRESENT STATUS

PRESENT STATUS