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.

Infrastructure Transport

06 Feb 2026

Lucknow Metro East-West Corridor Consultancy Contract Awarded

The Uttar Pradesh Metro Rail Corporation has awarded the first construction-related consultancy contract for the Lucknow Metro East West Corridor to a joint venture of AYESA Ingenieria Arquitectura SAU and AYESA India Pvt Ltd. The firm was declared the lowest bidder for the Detailed Design Consultant contract for Lucknow Metro Line-2 under Phase 1B and the contract was recommended following the financial bid. The contract is valued at Rs 159.0 million (mn), covering design services for the corridor. Lucknow Metro Line-2 envisages the construction of an 11.165 kilometre corridor connecting Cha..

Infrastructure Urban

06 Feb 2026

Div Com Kashmir Urges Fast Tracking Of Jhelum Water Transport Project

The Divisional Commissioner of Kashmir has called for the fast-tracking of the Jhelum water transport project, urging district administrations and relevant agencies to accelerate planning and clearances. In a meeting convened at the divisional headquarters, the commissioner instructed officials from irrigation, public health engineering and municipal departments to prioritise the project and coordinate survey and design work. The directive emphasised removal of administrative bottlenecks and close monitoring to ensure timely mobilisation of resources and contractors. Officials were told to in..

Infrastructure Urban

06 Feb 2026

Interarch Reports Strong Q3 And Nine Month Results

Interarch Building Solutions Limited reported unaudited results for the third quarter and nine months ended 31 December 2025, recording strong revenue growth driven by execution and a robust order book. Net revenue for the third quarter rose by 43.7 per cent to Rs 5.225 billion (bn), compared with Rs 3.636 bn a year earlier, reflecting heightened demand in pre-engineered building projects. The company’s total order book as at 31 January 2026 stood at Rs 16.85 bn, supporting near-term visibility. EBITDA excluding other income for the quarter increased by 43.2 per cent to Rs 503 million (mn),..