IBC offers little respite to resolution of stressed construction companies

01 Sep 2019 CW Staff

Of the 202 companies, 59 have either achieved resolution or ordered liquidation. The other 143 entities are currently in the process to resolve the matter. According to the ratings, a sample of 15 large companies entered the resolution process where financial creditors have made claims amounting to Rs 1.3 trillion. These companies are either close to the 270-day deadline or have crossed it without a proper settlement, which may result in the liquidation of these firms. The liquidation value, however, covers less than 10 per cent of the creditor’s amount as they do not own any sizeable fixed assets and a large part of their borrowings comprise working capital debt. In most cases, even after resolution, the lenders have faced a significant haircut.

“Timely initiation of the resolution process is critical for a construction company to realise maximum value for its creditors,” says Shubham Jain, Senior Vice-President and Group-Head, Corporate Ratings, ICRA. “Weak liquidity during the interim period could result in deterioration in operational performance, leading to cost overruns, termination of contracts, liquidated damages, penalties, invocation of bank guarantees, etc, which will further increase financial liability.”

A major factor that impedes smooth resolution is the existence of sizeable, non-fund based exposure. Construction companies are required to give clients bank guarantees (BGs); these are generally much higher than fund-based exposure. For stressed entities, the risk of invocation of a guarantee is also higher as the stretched financial position constricts their execution capabilities, which could lead to underperformance as per contractual obligations. The invocation of the BG converts a non-fund based exposure to a fund-based one and increases the overall liability for the company, thus aggravating the stress faced by the entity. The challenges faced will consequently delay resolution and significantly reduce realisable value.

The resolution of stressed construction companies remains fairly challenging despite the implementation of the Insolvency and Bankruptcy Code 2016 (IBC), according to ICRA ratings. About 202 construction entities facing financial stress have entered the corporate insolvency resolution process (CIRP) and are falling behind considerably, leaving creditors with a high margin to cover up.Of the 202 companies, 59 have either achieved resolution or ordered liquidation. The other 143 entities are currently in the process to resolve the matter. According to the ratings, a sample of 15 large companies entered the resolution process where financial creditors have made claims amounting to Rs 1.3 trillion. These companies are either close to the 270-day deadline or have crossed it without a proper settlement, which may result in the liquidation of these firms. The liquidation value, however, covers less than 10 per cent of the creditor’s amount as they do not own any sizeable fixed assets and a large part of their borrowings comprise working capital debt. In most cases, even after resolution, the lenders have faced a significant haircut. “Timely initiation of the resolution process is critical for a construction company to realise maximum value for its creditors,” says Shubham Jain, Senior Vice-President and Group-Head, Corporate Ratings, ICRA. “Weak liquidity during the interim period could result in deterioration in operational performance, leading to cost overruns, termination of contracts, liquidated damages, penalties, invocation of bank guarantees, etc, which will further increase financial liability.”A major factor that impedes smooth resolution is the existence of sizeable, non-fund based exposure. Construction companies are required to give clients bank guarantees (BGs); these are generally much higher than fund-based exposure. For stressed entities, the risk of invocation of a guarantee is also higher as the stretched financial position constricts their execution capabilities, which could lead to underperformance as per contractual obligations. The invocation of the BG converts a non-fund based exposure to a fund-based one and increases the overall liability for the company, thus aggravating the stress faced by the entity. The challenges faced will consequently delay resolution and significantly reduce realisable value.

Equipment

12 Dec 2025

Schwing Stetter India Unveils New Innovations at Excon 2025

Schwing Stetter India unveiled more than 20 new machines at Excon 2025, marking one of its most significant showcases and introducing several India-first technologies to the construction equipment sector. The company launched the country’s first 56-metre boom pump designed and manufactured in India, the first fully electric truck mixer, the first CNG mixer variant and the first hybrid boom pump. Executives said the launch portfolio was engineered to support India’s move toward faster, greener and more vertically oriented infrastructure through advanced engineering, clean-energy solutions a..

Infrastructure Energy

12 Dec 2025

SEPC Resolves Hindustan Copper Dispute, Wins Rs 725 Mn Order

Engineering, procurement and construction firm SEPC Ltd has recently settled a dispute with Hindustan Copper Ltd (HCL) and secured a mining infrastructure order valued at Rs 725 million from the state-owned company. SEPC informed the stock exchanges that it has executed a settlement deed with HCL, bringing closure to all inter-se claims and counterclaims arising from arbitration proceedings. As part of the settlement, SEPC will receive Rs 304.5 million as full and final payment, marking the resolution of all pending disputes between the two entities. The company also stated that Hindustan Co..

Infrastructure Energy

12 Dec 2025

20% Ethanol Blending Cuts India’s CO2 Emissions by 73.6 Mn Tonnes

Union Road Transport and Highways Minister Nitin Gadkari recently said that India has reduced carbon dioxide emissions by 73.6 million metric tonnes due to the adoption of 20 per cent ethanol blending in petrol. He made the statement while replying to supplementary questions during the Question Hour in the Lok Sabha. Describing ethanol as a green fuel, the minister said it plays a key role in reducing pollution while also supporting higher incomes for farmers. He underlined that ethanol blending contributes both to environmental sustainability and rural economic growth. Nitin Gadkari also po..