a) Distinguish between basic restructuring and financial restructuring.

Ans a ) basic restructuring

In most area of the business world companies are directing their restructuring effords
primarily towards improving operating efficiency. Over the last decade or so, there has
been frenetic activity within the corporate sector in the area of corporate restructuring.
The impact of industry consolidation, deregulation of markets, globalisation of brands
and convergent technologies across industry boundaries has caused companies not only
to change their strategies but also to make major, and in some cases repeated changes in
their organizational structure. This preoccupation with restructuring, fuelled no doubt by
the large consultancies, reached new heights in the mid-1990s with the re-engineering
wave, propelled in many cases by the adoption of computer-based enterprise resource
planning systems like SAP. Some of the changes undertaken in the name of corporate
restructuring have in fact proved to be very painful, not least to the employees most
closely involved, who ended up as the prime casualties of restructuring. So the question
is: has it all been worthwhile? Edward Bowman and his co-authors have recently
reviewed a number of studies which have tried to correlate restructuring with economic
performance. Overall, their investigation covers some 52 studies reporting data from
5000 firms. It is generally accepted that in the twenty-first century, the speed of change
is accelerating and so too is the environment in which companies have to survive. Major
challenges are posed by the need to respond to rapid technological change, the
globalisation of markets, extensive demographic changes and the emergence of the
knowledge society. Addressing these challenges necessitates constant adaptation and re-
adaptation. For many companies, restructuring is a part of these adaptation processes.

Restructuring generally has a negative image. It is often viewed as a threat to the business
itself, to employees and to society as a whole. From the perspective of companies,
downsizing and closures entail large financial costs, which are also detrimental to their
reputation as well as to the general employment climate. Employees face the stark reality
of job loss, often in regions where unemployment is already high. For the surrounding
community too, the costs may be high. A closure or massive restructuring swells the tide
of unemployment and disturbs the economic balance in the region.

FINANCIAL RESTRUCTURING
Poorly thought-out and badly executed acquisitions and mergers, rapid
technological change, corporate accounting scandals and sudden shifts in capital
markets are some of the reasons many organizations of different size and makeup
find themselves in financial difficulties. In some instances, a comprehensive
“turnaround” is needed, involving corporate strategy, business, management and

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finances. In other situations, it is principally a financial restructuring that is required.
The following pints must be considered for financial restructuring :
Viability Analysis
Carrying out an early-stage analysis of the distressed enterprise, focusing on near-
term cash generating potential, followed by longer-term strategic assessment.
Capital Structure
Formulating the appropriate capital structure to meet the new reality that the
restructured enterprise faces.
Company and Asset Valuation
Employing various valuation methodologies to appraise an entire enterprise or its
constituent parts in a timely and efficient fashion.

b) Discuss the various organisational measures which promote privatization.

ANS B) privatisation
In the context of economic reforms, privatisation means allowing the private
sector to set up more and more of industries that were previously reserved for
public sector. Under it, existing enterprises of the public sector are either wholly or
partially sold to private sector.
"Privatisation is the general process of involving the private sector in the ownership or
operation of a state owned enterprise." Need for privatisation was felt mainly because of
the inefficiency of the public sector. Most of the enterprises of the public sector were
running into loss. The main reason behind it was that the managers of public sector
enterprises were not free to take any decision independently. All important decisions
were taken by the Ministers, who were more concerned with their political interests. It
took long time to take decision. Consequently, production capacity remained under
utilized, managers failed to function in a responsible manner causing productivity to go
down. All these factors contributed to the inefficiency of the public sector. As a result of
privatisation there will be more competition, efficiency of the economy will increase,
quality and diversity of production enhance. Consumers will specially be benefitted. It
can take three forms:
(1) Change in Ownership: The degree of privatisation is judged by the extent of
ownership transferred from the public enterprises to the private sector. Ownership may
be transferred to an individual, co-operative or corporate sector. This can have four
forms;

(a) Total Nationalisation: It implies 100% transfer of ownership of a public

enterprise to private sector.
(b) Joint Venture: It implies partial transfer of a public enterprise to the private
sector.
(c) Liquidation: It implies sale of assets to a person who may use them for the
same purpose or some other purpose. This solely depends on the preference of the
buyer.
(d) (d) Workers Co-operative: It is a special form of denationalisation. In this form ,
ownership of the enterprises is transferred to workers who may form a co-operative

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to run the enterprise. In such a situation, appropriate provision of bank loans is
made to enable workers to buy the shares of the enterprise.
Organisational Measures: It includes a variety of measures to limit state control, they
include:
(a) A Holding Company Structure: It may be designed in a manner in which the
government limits its control to top level major decisions and leaves a sufficient degrees
autonomy for the operating companies in their day-to-day operations.
(b) Leasing: In this arrangement, the government agrees to transfer the use of assets of a
public enterprise to a private bidder for a specified period, say of 5 years. While entering
into a lease, the bidder is required to give an assurance of the quantum of profits that
would be made available to the state.
(c) Restructuring: It is of two types: financial restructuring and basic restructing,
(1) Financial Restructuring implies the writing off of accumulated losses and
rationalisation of capital composition in respect of debt-equity ratio.
(2) Basic Restructuring said to occur when the public enterprise decides to shed some of
its activities to be taken up by ancillaries or small scale units.
(iii) Operational Measures: The efficiency of public sector enterprises depends upon the
organisational structure. Unless this structure grants a sufficient degree of autonomy to
the operators of the enterprise or develops a system of incentives, it cannot raise its
efficiency and productivity. Privatisation in a narrow sense indicates transfer of
ownership of a public sector undertaking to private sector, either wholly or partially. But,
in another sense it implies the opening up of the private sector to areas hitherto reserved
for the public sector. The basic purpose is to limit the areas of the public sector and to
extend the areas of private set operation, including heavy industries and infrastructure.
Causes of Privatisation
Inefficiency and low productivity of public sector account for the increasing
tendency of privatisatse in the recent years. The main causes of privatisation are as
follows:
(1) Disintegration of Socialist Economies: Most crucial sector of Russia and
other soda economies was public sector. Taking these economies as model, almost all
under-developed countriesgss excessive importance to public sector. However, on
account of lack of decision making power on the patio management and excessive
political interference, public enterprises turned inefficient and proved to be the single
factor responsible for the failure of these economies. In Russia, under Perestroika
,liberal policy was adopted to some extent, but these economies disintegrated soon
thereafter. As a result, other economies, also lost confidence in the efficiency of public
sector. On the other hand, economies of USA, Japan Germany etc. were making rapid
progress under private sector. Thus, economies of rest of the world were attracted
towards market economy and private sector because of its efficiency.
(2) Inefficient Public Sector: Organizers of public sector do not have the
independence to tai decision. Most of the decisions of public sector enterprises are taken
by the ministers. Their decisions & politically motivated. Decisions are taken after long
delay. As a result, production capacity is not fully utilized and there is fall in
productivity. All these factors render public sector inefficient.

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 (3) Uneconomic Price Policy: Prices of public utility services like, electricity
,irrigation, transport water, etc. are not determined on the basis of economic principles.
These are determined on the basis o! political, social and other non-economic
considerations. In most of the cases, prices are deliberately key less than the cost of
production . consequently public sector enterprises suffer losses. Privatization is
advocated to avoid such losses.
(4) Burden on the government : losses incurred by the public sector enterprises
are not borne by their organizers or any other person. Losses are made good by the
government revenue organisers are therefore indifferent to profits earned or losses
incurred . no heed is paid to the productivity and the efficiency of the enterprise. There is
no spirit of competition among these enterprises for want of accountability. Quality of
production deteriorates and consumers are the losers. It is to remove these shortcomings
that the tendancy of privatization has gatherd momentum.