Educomp Solutions, the posterboy of technology-backed classroom solutions in the country, has filed an application under the new Insolvency and Bankruptcy Code (IBC) in a last resort bid to revive and turn around its business — as its lenders have been dithering on a corporate debt restructuring (CDR) exercise initiated almost four years ago.
A second revival plan submitted to lenders in July 2015 (after the CDR package failed to take off) didn’t elicit a decision either, although a subsequent techno-economic viability study submitted last September by consulting firm PwC said the business appeared sustainable ‘subject to certain risks’ that could be mitigated.
Working capital woes
Troubles for Educomp, whose outstanding debt was about ₹1,400 crore in July 2013 when it initiated the CDR exercise, mounted further due to inaction by lenders. The banks even failed to disburse the ₹108 crore of working capital that they themselves had approved as part of the CDR package.
This adversely affected the firm’s existing operations as well as growth prospects, said an official aware of the firm’s decision to approach the National Company Law Tribunal (NCLT) with its application to initiate proceedings under the IBC.
Educomp chairman and managing director Shantanu Prakash confirmed to The Hindu that the company had applied to the NCLT under the IBC, as it could provide comfort to lenders who had been unable to take a call on the turnaround plans and give the firm a chance to reconfigure growth and revival strategies.
With 12 of the 15 lenders having agreed to exit the CDR process at their last meeting in March 2017, Mr. Prakash stressed that Educomp had opted to seek to revive the company under IBC as any more delays would compromise its restructuring proposal.
By May 5, the firm’s total debt including interest dues, had ballooned to about ₹2,060 crore — of which ₹1,256 crore was owed to its three top lenders — IDBI Bank, Axis Bank and SBI.
“We feel that the new insolvency and bankruptcy framework, which is designed fundamentally to address issues of company revival where the basic business of the company is deemed to be viable will give the bankers the comfort to be able to conduct the resolution that they need to do in order to revive the company,” Educomp group CFO Ashish Mittal wrote in a separate e-mail .
Incorporated in 1994 and listed on the stock exchanges in 2004, Educomp faced large-scale delinquencies between 2010 and 2014 from schools that had signed up for its classroom training modules, particularly in tier-II and tier-III cities where it had rapidly expanded its presence.
Currently, about 4 million students across 75,000 classrooms use Educomp’s SmartClass Modules, while the company has 3,000 employees. Thanks to the uncertainty caused by lenders’ inability to decide on its revival plans, the firm has stopped taking up new business and is focused on collecting receivables from schools and fulfilling its contractual obligations.
Educomp’s stock, which had listed at about ₹125 closed at ₹8.80 on the BSE on Monday.