Company: XYZ Logistics Ltd.
Line of Business: Road Transport and Logistics
Customer Turnover: 70-80 Cr
Customer Requirement: The customer was looking for an additional Funding of 5 Cr for working capital purposes. On further probing, it was found that the cash flow crunch was only due to the heavy EMIs the customer was servicing on his existing Truck and other loans. The customer had a monthly EMI burden of 1.2 Cr which was adversely affecting his cash flows.
Problem Area: Even if we would have given the customer an additional 5 Cr, it would have only given him a breathing period of another 5-6 months, post which he would be in an additional burden to service the existing debt plus the repayment on the new funds that we would have provided. The solution hence, was not borrowing additional funding, but increasing the tenure on his existing loans. This, however, is not possible since increasing tenure on existing loans is considered “Restructuring” in Indian Banking systems and would put bad light on the company.
Solution: We structured a funding for the customer whereby, instead of restructuring the account, our banker provided for a bridge loan to shut the existing borrowings and provided for a new loan with an increased tenure back to back. This brought the customer’s monthly obligation down from 1.2 Cr to around 24 Lakhs on a monthly basis – saving him nearly a Crore a month on his EMI servicing.
The customer did not need to infuse any more funds as his cash flow was now much better managed. We still gave him a 2 Cr Overdraft facility to cushion the company in case a cash flow mismatch occurs again in the future.
This is a classic example of Restructuring a Loan keeping it within banking parameters. The customer was funded at a rate of Interest of 9.75% compared to his existing finance at 10.80%, resulting in a saving of nearly 20 lakhs of Interest burden annually.
