Due to the stressed situations that companies are under, the Prime Minister’s Office has suggested regulatory steps and liquidity help mutual funds lessen the burden on the companies.
As reported by the business standard, the guidelines include setting up a support mutual funds for COVID-19 that are directed to close-ended debt schemes. In this scheme, the exit and entry of investors on a wish, that is, till the tenure is over, not allowed.
Earlier this month, knowing the stress that had built up on the companies, PMO had written a seven-page letter to the Department of economic affairs and securities and exchange board of India(Sebi) demanding them to resolve the issues. Asset management companies are the most affected and this move could prove to be a lifeline for such companies who are threatened by a liquidity crisis for the past two years.
The news outlet further reports that there are other proposals to relax such a crisis situation including relaxation in the pricing mechanism especially for the companies restructuring themselves, modifying side-pocketing norms, giving time to create portfolio–15 days– not having to do it immediately and to debenture holders in case of default. These relaxations are sure to give some leverage to the companies in debt.
On the following issue, PMO said, “The intensifying COVID-19 pandemic and a looming global recession have cast an unprecedented cloud over the credit quality of India Inc which has already been impacted by a slowing economy. This has forced economists to reduce the base case gross domestic product growth forecast for 2020-21. The slowing economy will bring financial stress over the near to medium term. However, credit quality trends will be driven by the resilience of companies in terms of bouncing back from near-stand still demand situations.
It remains to be seen if these steps and recommendations will be a stress reliever for the companies or not.
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