Corporate restructuring is a complex process that requires proper planning and continuous execution. In today’s ever-changing business world, businesses must be swift in restructuring to preserve their value. Effective corporate restructuring requires an in-depth understanding of the company’s strengths and weaknesses, as this is critical for sustainable growth. It is a difficult task to maintain stability while keeping the best interests of the organization. Restructuring a distressed corporate is not only a corporate exercise but a business transformation journey that affects the groups they serve and impacts the lives of stakeholders such as employees, customers, vendors, creditors, etc. Therefore, successful corporate restructuring requires commitment and principles to preserve the value of a company. 

Corporate Restructuring in Insolvency 

The Insolvency and Bankruptcy Code, 2016 (Code) provides for Resolution Applicants i.e. potential investors to offer Resolution plans to revive a company that is admitted to the Corporate Insolvency Resolution Process (CIRP) under the Code. Section 5(26) of the Code read with Regulation 37(ba) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 defines Resolution Plan as a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern. The explanation to the regulation provides that the resolution plan may include provisions relating to restructuring of the corporate debtor, including by way of merger, demerger, acquisition and amalgamation. The definition of the Resolution Plan provided is inclusive, allowing other ways of restructuring as well. This freedom to come up with original ways of restructuring the distressed company is essential for the vigorous and complicated nature of the corporations. 

Corporate restructuring is necessary for the distressed corporates in insolvency or severe financial distress. Restructuring provides a support for stressed businesses by giving them a strategic plan to recover the financial stability, build their operations efficiently and thrive in long run. In these situations, it is critical to protect company’s assets and curtail losses for the stakeholders and confirm that the company is running efficiently, which is also the objective of Insolvency and Bankruptcy Code, 2016. By implementing a thorough restructuring process, the distressed or insolvent companies can restructure the debt obligations, simplify their operations, sell non-essential assets and cut back the costs. 

In this blog, we explore why Ruchi Soya faced financial distress, how it went through insolvency and how acquisition by Patanjali Ayurved and major restructuring efforts brought the company into good financial health. 

Ruchi Soya’s Acquisition by Patanjali Ayurved: A Successful Corporate Restructuring of an Insolvent Company 

Ruchi Soya Industries Limited was marked as the fourth highest defaulter, owing huge amount to financial creditors. The company was in the Reserve Bank of India’s second list of 30 defaulting companies marked for debt resolution. In December 2017, the National Company Law Tribunal (NCLT) admitted Ruchi Soya into insolvency proceedings based on the Section 7 applications filed by financial creditors — Standard Chartered Bank and DBS Bank under Insolvency and Bankruptcy Code, 2016. 

During the time, Ruchi Soya was one of India’s prominent Fast Moving Consumer Goods (FMCG) companies. Recognized for pioneering soya foods in India, it also manufactured and marketed a varied and healthy product range, including edible oils, vanaspati, and bakery fats. Ruchi Soya was operating various manufacturing facilities and was known for popular brands such as Nutrela, Mahakosh, Sunrich, Ruchi Star and Ruchi Gold.  

Reasons for Insolvency of Ruchi Soya 

1. Exposure to castor seed price rise and fall: In 2015, Ruchi Soya invested significantly in castor seeds when the prices were high but did not protect against the risk of price drops. When the price of castor seeds fell by 40% due to the arrival of new crops and weak global demand, Ruchi Soya faced major financial losses in the quarter ending March 2016. This failure to guard against price volatility was a major factor in their financial distress.

2. Regulatory concerns: Ruchi Soya was investigated by Securities Exchange Board of India (SEBI) for allegedly manipulating the market prices of the castor seeds. These investigations by SEBI publicized that Ruchi Soya was transferring money to its group entities within these market contracts. With the evidence of rigging and market manipulation, Ruchi Soya was banned by SEBI for trading in securities through National Commodity and Derivatives Exchange. This possibly impacted the operations of the company and the financial stability.

3. Inadequate working capital: The edible oil industry was already facing challenges with price volatility and high input and processing costs, leading to very low EBITDA margins. Due to the high volume and working capital needs of the business, the losses from castor trading deteriorated working capital limitations. This caused the operations to have reduced capacity and further diminished the EBITDA margins. The challenging economic conditions, along with a longer working capital cycle led to delays in debt collection. Subsequently, the distressed business faced a severe shortage of the working capital necessary for ongoing operations. 

 4. Underutilized capacity: Since 2015, Indian soybean exports encountered challenges due to the growing gap between domestic and international soybean prices. This price discrepancy has made the export of soybeans from India less economical. As a result, Ruchi Soya’s soybean crushing units struggled to remain sustainable. These units have been operating at just 13% of their capacity, far below what is required for efficient and profitable operations. 

5. High debt levels: The company was burdened with a huge debt of around Rs. 12,000 crores, including Rs. 9,345 crores owed to financial creditors and Rs. 2,750 crores to operational creditors. These high debt levels likely made it challenging for Ruchi Soya to manage its debt payments, ultimately resulting in defaults. 

6. Financial distress and losses: Before entering insolvency proceedings in 2017, Ruchi Soya had been incurring losses for several years. These losses depleted the company’s net worth. By March 2018, the company’s liabilities exceeded its assets, indicating severe financial distress. 

Acquisition of Ruchi Soya by Patanjali Ayurved 

After a prolonged battle between Patanjali Ayurved and Adani Wilmar to submit the resolution plans, Patanjali emerged as the only bidder and its resolution plan for Ruchi Soya was approved by the Committee of Creditors (CoC) with around 96% votes in favor. Patanjali offered Rs 4,350 crore to CoC to acquire Ruchi Soya. 

The Acquisition Process Involved Several Key Steps 

1. Bidding and Resolution Plan Approval: Post bidding battle between Patanjali Ayurved and Adani Wilmar, Patanjali emerged as the sole bidder when Adani withdrew citing delays in the resolution process. Patanjali’s revised resolution plan of Rs 4,350 crore was approved by the Committee of Creditors with around 96% votes in favor. 

2. Ruchi Soya Delisting and Acquisition: Ruchi Soya was delisted in November 2019, close to two years after insolvency proceedings began in 2017. The final sale transaction was completed in December 2019 with Patanjali paying as per resolution plan to take over Ruchi Soya. 

3. Relisting and Share Capital Changes: Ruchi Soya was then relisted in January 2020 after the acquisition by Patanjali. As a part of the merger, Ruchi Soya’s authorized share capital was increased. This enabled the issuance of new equity shares, preference shares, and debentures to Patanjali, facilitating financial integration and strengthening the company. Following the acquisition, Ruchi Soya’s paid-up equity share capital increased to Rs. 5,916.82 lakh, and the preference share capital rose to Rs. 45,000 lakh.

4. Debt Settlement and Capital Infusion: Out of Rs. 4,350 crores paid by Patanjali, Rs. 4,235 crore was utilized to pay creditors, while Rs. 115 crore was for capital expenditure and working capital requirements of Ruchi Soya. A total of Rs. 4017.70 crore was used to settle existing secured financial creditors, unsecured creditors, statutory dues, operational creditors, and Corporate Insolvency Resolution Process (CIRP) costs as on March 31, 2020.

5. Extinguishment of Liabilities: As per the approved resolution plan, Ruchi Soya’s contingent liabilities, commitments, claims, and obligations were extinguished, providing a clean slate for the company’s operations under the new management.

6. Shareholding Pattern: Post acquisition, Patanjali group held 99.03% shareholding in Ruchi Soya, and only 0.97% was owned by the public. 

The effective acquisition, capital infusion by Patanjali, debt reduction, and the collaborations from the acquisition enabled Ruchi Soya’s turnaround and positioned it for sustainable growth under the new management. 

Post-Merger the Following Factors Contributed to Ruchi Soya’s Success 

1. Improved Financial Performance: The financial ratios showed a significant turnaround in Ruchi Soya’s performance post-CIRP: 

  • Revenue increased from Rs. 11,994 crores in 2018 (pre-CIRP) to Rs. 13,117 crores in 2020 (post-CIRP). 
  • The company reported a net profit of Rs. 7,672 crores in 2020, compared to net losses of
    Rs. 5,573 crores in 2018. 
  • Key ratios like EPS, PBDIT/Share, PBIT/Share, PBT/Share turned positive in 2020 after being negative in the pre-CIRP years.

2. Debt Reduction and Improved Liquidity: The resolution plan involved paying off creditors using the funds brought in by Patanjali. As of March 2020, Rs. 4017.70 crore was used to settle existing secured/unsecured creditors, statutory dues, operational creditors, etc. This significant debt reduction improved Ruchi Soya’s liquidity position. 

3. Capital Infusion and Capacity Expansion: Patanjali infused Rs. 115 crores into Ruchi Soya for capital expenditure and working capital requirements and expanded Ruchi Soya into different product lines. 

4. Valuation and Market Performance: The infusion of capital, the merging of assets, and the reduction of debt have significantly improved Ruchi Soya’s financial health. These changes have increased the company’s valuation and liquidity ratios, projecting a much stronger and more stable future for the business. 

5. Rating Agency Outlook: Rating agencies predicted that Ruchi Soya’s credit profile will improve over the medium term. This positive outlook is based on the expectation that the new management under Patanjali will successfully ramp up operations. 

Conclusion 

Corporate restructuring provides insolvent or distressed companies a necessary opportunity to re-evaluate their business models, adapt to changing market conditions, and realign their strategies for future growth. This tackles the underlying issues and implements the necessary reforms.   Restructuring helps these companies merge and create a synergy to be well-equipped to compete in their respective industries. The case of Ruchi Soya’s acquisition by Patanjali Ayurved demonstrates how corporate restructuring can serve as a lifeline for struggling and distressed businesses. 

This strategic approach enables companies to resume their financial stabilities, enhance operational efficiency, and ensure long-term viability. By reducing debt burdens, infusing fresh capital, and realigning strategies, restructuring can transform distressed businesses into robust and competitive entities, ready to navigate the complexities of the modern business landscape. This strategic move allowed Ruchi Soya to leverage Patanjali’s vigorous distribution network and brand image, leading to improved market reach and enhanced operational efficiencies, ultimately stabilizing its financial health and boosting profitability and competitive advantage for an insolvent company. 

Why Choose InCorp Global? 

InCorp’s restructuring team is experienced in handling complex cases under Insolvency and Bankruptcy procedures and Corporate Restructuring. We have a good track record in effectively handling complex corporate restructurings. Our team is well-versed and provides a holistic approach for debt restructuring, operational boosts and strategic relocation. Choose us to lead your company through distressed situations and a better future. To learn more about our services, you can write to us at info@incorpadvisory.in or reach out to us at (+91) 77380 66622.

Co-authored by Varshitha N G.

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