Corporate Nursing : Health is Wealth

Imagine about a high-tech system : A medical clock like wrist watch on your arm, continuously analyzing your body parameters. Your doctor and his team is getting this data, and the moment there is something abnormal noted, the clock gives blip tone…, before you can think of something, you get call from your doctor on what you need to do in next one minute. In next 15-20 minutes, the medical team is in your cabin, the Helicopter is waiting for you on top of the building to take you to the Hospital ! You are out of danger. Wow ! and Why? Timely analysis and on time medical aid. Cost: Of course the service charges you pay to the doctors.

What encouraged you for this safety major? : Because you know you are important and only on-time service can avoid disasters.

I was thinking that working capital lenders are not less than the doctors team in above example since they have a hand on pulse rate of the borrower company. They have continuous watch on how the funds are being utilized by the borrower, and the moment borrower comes out with the need for temporary overdraft or shows signs in the form of delays in payments, increasing receivables, cheque dishonour, LC devolvement, etc. they get the first signs of something happening wrong with the borrower. But the million dollar question is: Whether the lenders should act like the doctors and immediately take the borrower for restructuring? And why not so? Isn’t it good to get healed? Isn’t it good to take timely action for the long term benefit of stakeholders?

First, I think restructuring would not be the right word. Because, restructuring would be something related to long term treatment, and we are talking of correcting something at the initial warning sign stage itself so that the need for restructuring can be avoided. Also in the current global economic scenario of slowdown, restructuring has not got a good reputation.

I think this area of business is still not explored in India because of the bad reputation attached with restructuring. As mentioned above, there is need to differentiate between Restructuring and Timely Corrective Action. So, it would be better to devise a suitable word for such treatment: may be ‘Corporate Nursing’.

Banks presently keep on analysing the data/accounts of the borrower, however, there is no approved plan of action in place about what to prescribe as soon borrower needs an emergency aid. As a result the borrower has to run from pillar to post for temporary overdrafts / short term loans to meet that unforeseen liquidity mismatches.

The lender and borrower need to create a plan like a reserve fund for meeting the challenges in difficult times of business like presently many of the companies are facing. It is very similar to your medical insurance where you pay a premium today in your good time for your bad time. So, why not devise an emergency plan to help the company when times are not good. No harm in paying premium today for that little but life saving service.

How this can be implemented in the real world? Here are some the possible ways which I can share:

- At the time of assessment only the lead bank, carries out the sensitivity analysis with worst case scenarios and discuss with the borrowers how the business in that situation would be managed.

- A plan of action, which could include availability of short term loans, creation of some reserve funds during good times, borrower keeping some unencumbered assets which can be offered to lenders as an additional security for the emergency support services.

- Promoters agreeing to provide their personal guarantees for emergency support from lenders.

- Borrower/Promoters agreeing to pledge shares for emergency support from lenders.

- A reserve liquid fund kept ready by promoters as their contribution before availing the emergency support.

- Borrower keeping a ready tie-up with another stronger company who will agree to lend corporate guarantee in emergency times (of course such corporate would be charging guarantee premium for this) etc.

- Insurance companies devising products of providing cover to lenders (for securing that additional exposure taken by lenders under the emergency support plan) when the agreed emergency support is facilitated on occurrence of event/parameters.

The moot point here is that the lenders find it difficult to lend an immediate help in difficult time of borrower because it is also difficult for them to pump more money into a company which is in trouble. However, if there is already an approved exigency plan and for which borrower has been paying insurance premium kind of service fee, then the lenders would have no difficulty in providing timely support.

A timely action taken by lenders and borrower would help in avoiding exigencies which could be jeopardizing the interest of all the stakeholders. Therefore, it is of utmost importance to ensure taking all the action to protect the health of the borrower in the interest of long term wealth protection.

I leave this thought here for all of you to nurture it further. Happy innovating.