Pawan Bansal highlights the importance of Financial Restructuring

Financial Restructuring is essentially the process of reorganizing financial structure of a firm comprising equity capital and debt capital. This is done in order to comply with company’s financial situation or as a part of financial strategy. Under Financial Restructuring, financial assets and liabilities of a company are reorganized for the creation of the most beneficial financial condition for the firm. Pawan Bansal of Altius Finserv says that financial restructuring is a general practice, usually undertaken by the companies that are faced with tough economic situations. Giants like Kingfisher have resorted to Financial Restructuring in order to lend their financial situation a better stance.

The need for financial restructuring can be driven by various factors including Poor financial performance, external competition, and loss of market share or as a part of strategy to tap on to emerging market opportunities. Financial restructuring can be either from the assets side or the liabilities side of the balance sheet. Changes in one require alterations in the other to strike a balance.

Financial Restructuring involves two components:

1. Debt Restructuring: Involves rearranging the whole debt capital of the company. The balance sheets, for they contain the debt obligations of a company, are reshuffled. While doing this, Altius Finserv recommends it is important to mitigate the cost of capital and improve the efficiency of the company as a whole.
2. Equity Restructuring: Here, the equity capital of the company is reorganized. The shareholders’ capital and reserves appearing in the balance sheet are reshuffled. This is a matter involving legal know-how about the restrictions and regulation governing the equity restructuring.