{"id":7594,"date":"2021-08-14T05:55:24","date_gmt":"2021-08-14T05:55:24","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=7594"},"modified":"2021-08-14T05:55:27","modified_gmt":"2021-08-14T05:55:27","slug":"increasing-value-with-financial-restructuring","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/increasing-value-with-financial-restructuring\/","title":{"rendered":"Increasing Value with Financial Restructuring &#8211; An Overview"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Financial Restructuring is a dedicated proposal undertaken to restructure the financial assets &amp; liabilities of a business to make the most advantageous surrounding for that company. Mainly, it includes rearranging or restructuring share capital &amp; debt. With ineffective Restructuring, entities are often allowed to favourably alter their contractual bonding with lenders, other stakeholders, and shareholders. Financial Restructuring is a corporate action that looks to change the company&#8217;s structure and debt operations, with the definitive goal of restricting financial damage besides and authorising it to plug more business opportunities. <\/p>\n\n\n\n<p>Sometimes\nthe restructuring process is linked with corporate Restructuring. In the case\nof corporate Restructuring, the general composition &amp; function of the\ncompany is likely to have an impact, but financial Restructuring is more to do\nwith the financial health of an entity or a company. <\/p>\n\n\n\n<p>Given\nthe ongoing economic emergency due to the Covid-19 pandemic, Restructuring can\nundoubtedly be a rising area of practice for corporate &amp; finance experts,\nwhich can provide them with various opportunities for renewal of unwell\nbusiness enterprises and their growth.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a4b22e00ba\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a4b22e00ba\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/increasing-value-with-financial-restructuring\/#What_are_the_Different_Types_of_Financial_Restructuring\" title=\"What are the\nDifferent Types of Financial Restructuring?\">What are the\nDifferent Types of Financial Restructuring?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/increasing-value-with-financial-restructuring\/#Pros_and_Cons_of_Debt_Restructuring\" title=\"Pros and Cons\nof Debt Restructuring\">Pros and Cons\nof Debt Restructuring<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/increasing-value-with-financial-restructuring\/#What_are_the_Steps_Involved_in_Financial_Restructuring\" title=\"What are the Steps Involved in Financial Restructuring?\">What are the Steps Involved in Financial Restructuring?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/increasing-value-with-financial-restructuring\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Different_Types_of_Financial_Restructuring\"><\/span>What are the\nDifferent Types of Financial Restructuring?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-13.png\" alt=\"Different Types of Financial Restructuring\" class=\"wp-image-7599\" width=\"578\" height=\"99\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-13.png 770w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-13-300x51.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/08\/image001-13-768x132.png 768w\" sizes=\"(max-width: 578px) 100vw, 578px\" \/><\/figure><\/div>\n\n\n\n<ul><li><strong><em>Debt Restructuring<\/em><\/strong>: It is an arrangement permitting entities to decrease or negotiate their outstanding debts with the consent of creditors and lenders. By way of this Restructuring, entities can prevent default or take benefit of lower interest rates, extended credit terms etc. It refers to the reallocation of resources by way of altering the debt terms. Following are the types of debt restructuring:<ol><li><strong><em>Stressed Debt Restructuring<\/em><\/strong>: It\u2019s a process wherein a company experiencing financial distress and liquidity issues refinance its present debt obligations to increase more flexibility in the short-term and makes their debt more manageable generally. It&#8217;s a strategy for keeping the entity afloat &amp; getting the entity back on path financially. Usually, in such conditions, an adjustment is made by the creditor, lender, etc, to smoothen temporary problems towards loan repayment faced by the entity or company.<\/li><li><strong><em>Normal Debt Restructuring<\/em><\/strong>: In this type of debt restructuring, a relatively healthy company swaps or refinances their high-interest rate debts into low-interest rate debts or amend repayment schedule suiting their business. &nbsp;The entity can also swap its multiple debts having high interest rates and uneven repayment terms into a single debt with good interest rates and repayment terms.<\/li><li><strong><em>Conversion of Debt<\/em><\/strong> <strong><em>to Equity<\/em><\/strong>: It is also known as \u201c<strong>Swap<\/strong><sup><a class=\"text-primary\" href=\"https:\/\/en.wikipedia.org\/wiki\/Swap_(finance)\"><strong>[1]<\/strong><\/a><\/sup>\u201d, which is a type of financial restructuring arrangement between the lenders and the company under which the debt sections of the company or entity are converted into equity of the business. In simple terms, the debt providers become owners of the business. A debt-equity swap generally happens in cases where the business is under financial pressure, but the lenders decide to support examining viability in the business model and the promoters&#8217; commitment.<\/li><\/ol><\/li><li><strong><em>Equity Restructuring<\/em><\/strong>: It is the restructuring process of equity capital. It comprises reshuffling of the shareholders capital and the reserves that are appearing in the balance sheet. Equity restructuring involves a law process and is a highly regulated area wherein the proficiency of corporate professionals is required.<\/li><\/ul>\n\n\n\n<p>Over\ncapitalisation is a state wherein earnings are not sufficient to validate the\nfair return on the number of securities issued that have been granted by the\ncompany, whereas under capitalisation is a state where the capital which is\npossessed by the business is less than the borrowed capital. Restructuring can\nbe done in two conditions: Under Capitalisation and Over Capitalisation &amp;\nsuitable strategies can be applied.<\/p>\n\n\n\n<ul><li><strong><em>Under Capitalisation<\/em><\/strong>: In this case, generally, own capital is much lower than the borrowed capital. Such a situation increases typically when owned capital of the company is dipropionate to the scale of its operations, and its business depends upon more borrowed capital.<\/li><\/ul>\n\n\n\n<p><strong><em>Restructuring\nby way of:<\/em><\/strong><\/p>\n\n\n\n<ol><li>Restrain to extra borrowings;<\/li><li>Converting outstanding liabilities to equity;<\/li><li>Rearranging business by converting firm to company etc.;<\/li><li>Issuing convertible securities;<\/li><li>Accepting deposits for shareholders;<\/li><li>Injecting more capital that is FPO, IPO VC or PE funding, etc.;<\/li><\/ol>\n\n\n\n<ul><li><strong><em>Over Capitalisation<\/em><\/strong>: The Company&#8217;s earning is not enough to justify a fair return on the amount of share capital &amp; <strong><a href=\"https:\/\/swaritadvisors.com\/issue-of-debentures\" class=\"text-primary\">debenture issued<\/a><\/strong>. It can be a case also where borrowed funds or total ownership are more than current &amp; fixed assets which represent accumulated loss on the asset side.<\/li><\/ul>\n\n\n\n<p><strong><em>Restructuring by way of:<\/em><\/strong><\/p>\n\n\n\n<ol><li>Reduction of capital;<\/li><li>Fixed deposit repayment to the public;<\/li><li><strong><a href=\"https:\/\/swaritadvisors.com\/buyback-of-shares\" class=\"text-primary\">Buyback of shares<\/a><\/strong>;<\/li><li>Debentures or Redeeming bonds;<\/li><li>Paying extra back shares to shareholders;<\/li><li>Loan pre-payment to the bank.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pros_and_Cons_of_Debt_Restructuring\"><\/span>Pros and Cons\nof Debt Restructuring<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Pros\nof Debt Restructuring:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Protection of business assets;<\/li><li>Getting company back on path\nfinancially;<\/li><li>Lowering the interest cost;<\/li><li>Improving financial management.<\/li><\/ul>\n\n\n\n<p><strong><em>Cons\nof Debt Restructuring:<\/em><\/strong><\/p>\n\n\n\n<ul><li>It affects critical business\ngoals badly;<\/li><li>Sufficient funds are available\nto servicing present debt;<\/li><li>Accessing inexpensive sources\nof funds is possible;<\/li><li>Action is started without a\nproper repayment plan.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Steps_Involved_in_Financial_Restructuring\"><\/span>What are the Steps Involved in Financial Restructuring?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ol><li>Elaborated assessment of short\nand long-term cash necessities for a company and ensure that business will\nreach their significant competencies;<\/li><li>All appropriate stakeholders\nneed to be immediately recognised and mapped into different categories so that\nthey agree to their consent to move to the next step for financial\nRestructuring. It will safeguard the value and prevent the risk of potential\ninsolvency for the company;<\/li><li>Stakeholders of the company may\nplan to confront underlying assumptions which comprise understanding the\nreasons for underperformance, which may involve interaction with the management\nteam of the company to plan appropriate strategies, initiatives &amp; the\nbusiness plan of the company;<\/li><li>The company or entity should\nimprove more than one plan to address possible eventualities. The first stage\nof appraisal, negotiation &amp; assessment should lay a foundation for the\nimprovement of the financial Restructuring;<\/li><li>The proposal of financial\nRestructuring should be prepared considering effective processes, maintain\nvalue &amp; tax efficiency;<\/li><li>Alteration in economic\nsurroundings, new developments and demands from stakeholders may require a\nplanned reworking.<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When\nthe suitable action course is agreed upon, it should be executed smoothly and\nquickly to come out of the existing financial issues without troubling the\nbusiness. Planning for possible targets for the turnaround of a business,\nsetting aside time to estimate the impact, and being open to creative concepts\nare also vital for measuring success. But, financial Restructuring is a dynamic\nprocess due to which any alterations in external or internal factors comprising\neconomic surroundings can later projections in a big way.<\/p>\n\n\n\n<p>Regularly observing is required across all phases: planning, execution and post-execution stage and after that taking vital corrective steps while considering the condition will find out the success quantum. Financial Restructuring can severely impact the business, and it can yield superior returns by maximising value for all stakeholders. There may be significant costs linked with restructuring exercise; however, still corporate would like to undertake such exercise to get various advantages and create value for their stakeholders.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/a-comprehensive-analysis-of-financial-services-sector\/\">A Comprehensive Analysis of Financial Services Sector<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Financial Restructuring is a dedicated proposal undertaken to restructure the financial assets &amp; liabilities of a business to make the most advantageous surrounding for that company. Mainly, it includes rearranging or restructuring share capital &amp; debt. With ineffective Restructuring, entities are often allowed to favourably alter their contractual bonding with lenders, other stakeholders, and shareholders. [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":7598,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[24],"tags":[808],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7594"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=7594"}],"version-history":[{"count":24,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7594\/revisions"}],"predecessor-version":[{"id":7626,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/7594\/revisions\/7626"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/7598"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=7594"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=7594"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=7594"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}