Restructuring is for the best of times as it is for the worst of times. Most managers think of restructuring only when it is the worst of times. This compels them to restructure leaving not much leverage for options. Restructuring is best achieved when the enterprise is healthy and robust. Restructuring is relevant to all organisations, failing and faltering, as it is to healthy, robust and growing.

Enterprise Restructuring is not limited to Small and Medium Enterprise (SMEs) it is equally applicable to large and giant organisations. In fact, larger organisations need more frequent restructuring. Restructuring is essential for enterprise manufacturing goods, capital equipment or consumer goods as it is for those engaged in services.

Restructuring is as a relevant intervention for public enterprises, as it is for private ones. In the past before the launch of the economic reforms programme both public and private enterprises were relatively inflexible. Both considered, no doubt for different reasons, that there were no real compulsions for change. Today, restructuring is more rampant in the private sector than it is in the public sector. Both need it urgently and continuously. The business environment, metamorphosed by globalisation, IT and telecom, has made restructuring necessary for survival.

A study in mid-1990s showed that half of the Fortune 500 companies had undergone processes of restructuring. Some 20 percent were taken over. Those which did not go through these processes failed or faltered in the emerging competition. 

Restructuring is just business renewal. It can be either total or partial. It can be structural, strategic, or operational touching the following:

• Transformation of corporate vision, which may involve change in work culture
• Technology substitution and upgradation
• Strategic change involving expansion, diversification, integration - backward or forward hiving off
• Corporate renewal: encompassing intra-corporate reorganization
• Leveraging capital, right-sizing capital or rationalizing capital resource
• Human resource revamp: involving right-sizing or establishing new relationships or developing and realigning new skills
• Functional rationalization involving business process reengineering including organisational restructuring 
• Market restructuring which may include changes of product mix, product development, resegmentation or new competition thrust
• Cost reduction focusing on asset structure or operating costs 

Sickness and Restructuring

Restructuring, more often than not, is equated with turnaround. It is due to the concern for the sick enterprises.

One way to look at the problem of sickness is the depth of sickness, defined by the deviation from break even point. In other words, the relative size of loss is the criterion. Sickness, however, has wider ramifications. One must look at the problem from a diagnostic angle.

Another way to view the problem is by the 'slack theory'. Corporates acquire flab when they are doing well. Often, it occurs because of a considerable amount of liquidity has been generated and the management feels that it can afford to be 'progressive' - read extravagant – and can invest in 'feel good' elements. 

This could be well-intentioned and ostensibly building a long term perspective but unless it is geared to a strategic design, it could prove to be wasteful.

The government appointed a Committee on Industrial Sickness and Corporate Restructuring which submitted its report in July 1993. The Goswami Report was critical of functioning of BIFR. It found that as of July 1992, the BIFR recommended winding up of only 242 companies out of 1010 cases referred to it and succeeded in turning around only 49 cases.

The Committee had recommended overbearing powers to the creditors. It did not favour the accounting norms and recommended sickness in favour of banking indices of sickness. It suggested that if the company fails to meet the banking, commitments for more than 180 days, a reference must be made to BIFR. The Committee pointed out that the BIFR procedures were dilatory and were not effective for a rehabilitation programme. It suggested that procedures should be streamlined. If the restructuring package cannot be finalised within 150 days, the applicant company should be put on the block. While the recommendation was desirable, it was not realistic. The purpose for which BIFR was established was not to close down undertakings, it was to rehabilitate them, if possible. The real purpose in having an institutional instrument like BIFR was to protect the interests of different stakeholders by a more efficient use of involved productive assets. The Committee's concern was the unethical practices of promoters. The Committee's recommendations did not find much favour and remained unimplemented. 

At the end of March 2001, out of tile 3,435 companies which were registered with the Board, only 2,160 cases were disposed of. The disposed of cases include over 700 which were simply dismissed as non maintainable. This effectively meant that the Board took decisions in 1,460 cases only. The companies on which decisions remained in abeyance involved some 8 lakh workers employed in 1,275 companies which were brought under its umbrella. 

While the disposed of 2,160 cases together accounted for accumulated losses of Rs 253 bn, accumulated losses of the pending 1,275 cases together were of the order of Rs 322 bn. Compared to the net worth of the disposed cases, which had a net worth of Rs 131 bn, the net worth of the pending 1,275 cases stood at a staggering Rs 183 bn.

In its performance review for the year 1998 (the fast one to be made public), the Board observed: "Since tile total number of cases with BIFR" at  present is 1,147 and each of the three benches is required to deal with 450 cases. Considering an average 200 working days in a year and each bench hearing three cases a day, the three benches can together hold about 600 hearings which means that it was not feasible to hold more than even two hearings of a case in a year.

The government has now decided to disband BIFR after 16 years of its establishment in 1985. Its functions will be taken over by a Company Law Tribunal. Under the new dispensation, a sick company to be referred to the Tribunal will be one which has eroded 50 percent of its net worth in the last two years.

Size and Growth of the Public Sector 

The present size of investment in the Central public sector had reached the level of Rs. 2,525 billion at the commencement of 2000-01. It is equivalent of 94 percent of the total revenue receipts of the Government of India and half of the total external debt of India.

From a total investment of Rs 290 mn in 1950-51, the Central public sector expanded in a decade to a little less than Rs 10 bn at the end of the 1950s. During the second decade, the investment witnessed a four-fold expansion to around Rs.400 bn. At the end of the 1990s, the aggregate investments had reached the level of over Rs. 160 bn, once again a four- fold-increase. The increased tempo of investments in the public sector- was more marked In the Seventh Plan period. By the end of the Eighth Plan period, the investment had expanded to over Rs.2136 bn. The increase during the first three years of the Ninth Plan has been of the order of Rs. 389bn taking the aggregate investment to the present level.

The debt-equity ratio of the total investment at the end "of 1999-00 was approximately 2.1. The higher than preferred component of debt is due to the capital intensity of a major part of investment portfolio. The sources of funding show that while the Central Government was the main stakeholder in risk capital, the financial institutions provided a major part - two thirds -of the loan capital. The State governments also made small contributions in selected CPEs.

Long term borrowings of CPEs went up from Rs. 947 bn in 1991-92, to Rs. 1,681 bn in 1999-00, registering an annual growth rate of 7.4 percent. The growth exceeded the expansion in equity during the same period. This relative higher expansion in debt was a consequence of the new economic policies enunciated by the government.

The internal resource generation by CPEs in the post-reform programme has been of the order of Rs 2, 127 bn, which is composed of depreciation (Rs 1030 bn), deferred revenue expenditure written off{Rs 50 bn) and retained profits (Rs 1048 bn).

Overall, the CPEs have generated more resources by themselves than what has flowed in as investment. 

Basic Financial Parameters

In absolute terms, the turnover/operating income of CPEs expanded steadily from Rs.1,187 bn in 1990-91 to a level of Rs. 3,893 bn at the end of 1990-00. This increase in turnover marked an annual growth of 14.1 per cent. In the context of the frequent deterrent pronouncements relating to privatisation and disinvestment of the CPEs, on the one hand, and the emerging challenges of globalisation, on the other, it. is to say the least, a creditable performance.

The overall net profit of all the CPEs in 1990-00 was Rs. 145.55 bn against only Rs. 22.72 bn in 1990-91, increasing steadily year after year. The profit includes the losses of loss making CPEs (including the taken over sick enterprises). It also includes the results of non-commercial Section 25 companies.Net profit of profit making enterprises expanded from Rs. 53.94 bn in 1990-91 to Rs. 246.15 bn at the end of the decade. This represents a near five-fold increase.

Dividends declared by all CPEs amounted to over Rs.54.55 bn in 1999-00, against a mere Rs. 4.13 bn in 1990-91. The increase was partly due to higher quantum of profits earned and partly due to a change in government policy. In the later years, the government called upon the undertakings to pay higher dividends prescribing certain norms.

The overall performance of the public sector in the 1990s fully reflects the steady progress towards a sustainable commercial capability. The gross margin on capital employed remained high, between 19 to 21 per cent. Net Profit to Equity improved from 5.2 percent in 1990- 91 to 17.5 per cent in 1999-00. Profit before tax also improved perceptibly from 8.0 percent to 27 percent in 1999-00.

Loss Making and Sick Enterprises 

However, as against the profits, the net loss incurred by loss-making enterprises amounted to Rs.100.60 bn 1999-00 against a net loss of Rs.23.69 bn in 1990-91. The share of taken over sick enterprises in the total loss incurred by the CPEs increased marginally from 17 per cent in 1998- 99 to 19 per cent in 1999-00. Sector wise, steel industry's share in total losses amounted to Rs.25 bn (or 25.1 per cent), fertilisers Rs. 16 bn (16.2 percent), coal and lignite Rs.15 bn (15.3 percent), textile Rs.14.8 bn (14.7 percent). These four sectors had a share, of over 71 percent of the losses incurred by the CPEs.

The takenover sick enterprises in the public sector which have plagued the overall performance of the sector, area good indicator of the faltering, non-performing private sector. The number of public sector companies, which constituted the enterprises taken over from the private sector, was 45 in 1999-00 the number of units taken over being much larger.

Out of a total of 232 operating CPEs, 106 reported losses for the year 1999-2000. As on March 31, 2000, 67 industrial CPEs the net worth of which had become negative, were registered with the BIFR. Private sector enterprises, taken over by the government to safeguard the interest of the workers, constituted over 53 per cent (or 35) of the BIFR reported cases. Out of these 67 CPEs, BIFR had taken final decision in respect of 14 CPEs and the rest 53 CPEs cases were pending at the end of March.

Out of 53 CPE cases pending with the BIFR, revival schemes were sanctioned for 20 CPEs, and draft schemes circulated for 7 CPEs. Six CPEs had been issued winding up notices, while 15 CPEs are under enquiry. Three cases of CPEs which had failed earlier, have been reopened. One CPE, Mining and Allied Machinery Corporation has received a stay order by court, whereas, one CPE has been remanded by the Appellate Authority.

BIFR has taken final decision on 14 CPEs. It has recommended winding up for 9 CPEs and dismissed 2 cases as non maintainable. BIFR dropped one case as the CPEs net worth turned positive. Two CPEs cases were declared 'no longer sick'. 

Major Issues Crying for Attention 

In the context of the overall problem of restructuring and cases of sick enterprises in the public sector, the major issues which emerge are:

• How do we distinguish between revivable and non-revivable enterprises?
• What are the options available for non-revivable enterprises?
• Is it possible to merge the non-revivable enterprises with other units? 
• If Yes, what will be the fast-track mechanism?
• If the non-revivable enterprises are closed down, what about the manpower engaged?
• Are there safety nets available or could these be created? 
• How can CPEs, to be turned around (or to be closed), attract worker support and cooperation?
• Can some non-revivable CPEs be handed over to workers?
• What are the priorities for revivable units?
• What strategy can be adopted for CPEs which cannot stand alone or are vulnerable units to be left alone to be forced to terminal sickness?
• What can be the best mechanism to expedite the operation?
• What about incipient sickness?
• Irrevivable CPEs and CPEs with incipient sickness are to be revived where will the funding come from?
• What impact will the closure of BIFR have on the CPEs which are referred to it and others which may be referred?
• What strategies should be followed to deal with a) a non-revivable CPEs, b) revivable CPEs which call for immediate ICU (intensive care treatment) c) loss making enterprises which have the potential for gaining competitive strengths and d)CPEs which are performing but run the risk of becoming sick in the global environment.
• How does privatisation and disinvestment programme affect the future and future course of action of non-performing CPEs?