CEOs feel pandemic will create debt repayment challenges: EY survey

More than half (58 per cent) of them said this will lead to distress asset sales within the next year, and 83 per cent said they are willing to sell at a 10 per cent reduction in valuations as well. According to the survey companies are re-evaluating their ownership of non-core assets and considering migrating to an ecosystem of strategic partners, pointing out that nearly a third of those surveyed said they want to shift to an asset light model by outsourcing manufacturing operations.

The COVID-19 pandemic will create challenges on the debt repayment front and lead to an increase in distress asset sales, a survey of 40 Indian CEOs conducted by global consultancy EY showed on Friday. In the survey, conducted in April-May, over three-fourth of the respondents said they would be willing to accept a 10 per cent reduction in the valuation of the asset because of the current circumstances.

It can be noted that even though some near-term relief has been granted to borrowers, concerns have been raised about the debt servicing capabilities of companies and experts have estimated a surge in the bank's stressed asset books because of it. The survey also comes on a day when the country's largest corporate Reliance Industries announced that it has become net debt free after stake sales totalling to over Rs 1.69 lakh crore in its telecom venture to strategic and financial investors.

In the survey of CEOs, 67 per cent of the respondents said debt repayment was one of the challenges triggered by COVID-19, as per an official statement. More than half (58 per cent) of them said this will lead to distress asset sales within the next year, and 83 per cent said they are willing to sell at a 10 per cent reduction in valuations as well.

According to the survey companies are re-evaluating their ownership of non-core assets and considering migrating to an ecosystem of strategic partners, pointing out that nearly a third of those surveyed said they want to shift to an asset light model by outsourcing manufacturing operations. However, when asked about utilisation of the proceeds, over three-fourth respondent said the proceeds from the asset sales will be invested in core business, while 58 per cent said it will be used to pare debt and 42 per cent intend to return cash to shareholders.

It explained that there is a need for a significant amount of investments into areas such as automation because of the crisis, and while the pandemic has exposed cracks in some companies' ability to support remote workforces, the quickly changing demands of customers are an even bigger consideration. “The financial and economic impact of the pandemic has caused shifts in divestment perspectives over the last few months,” EY's partner Naveen Tiwari said, adding companies need to consider reshaping their business portfolio by strategically divesting non-core assets to free up capital and build resilience.