New Delhi, Sep 13 (): Debt burden of a one-third of India Inc has led to a situation where they have to declare bankruptcy or nearing towards it.
The majority were those who expected growth and went in for debt funds to meet the demand but found that these new projects were unviable and with that the investors pulled out too.
Rising liability, declining market capital and low profitability are the causes. 500 companies in BSE results show that 143 of the 406 are in the red or nearing that. This does not include banks or finance companies. The market capital is 1.5 times below the total debt.
These companies launched Rs 6.85 lakh crore worth projects in two years and have put in Rs 2,59,000 crores. Investors now prefer low capital intensive ventures with high and quick returns. These companies cannot raise funds from equity markets.
Of the gross debt, these companies form 71% and 14% of entire market capitalisation of BSE 500. Mining sector, metals and power projects as well as gas and oil are among these companies but market analysts say that in a slowdown, a mismatch between investment and returns do happen but when there is growth, these sectors can raise enough to cover their debts but say that in reality, retail, construction and education sectors have little chances to recover in good times since they have used the debt to buy buildings and land which are dubious. These sectors have come in without enough working capital and they opted for the debt route.
With a turnaround, these sectors will find it difficult to balance the debt and returns and the imbalance could only further widen. This situation also puts banks who funded them in a bad position as they will have to write off major part of the money if they start recovery. The power and metal- mining projects output will be in demand when the growth of economy starts, points out analysts.