During Japan's "Lost Decade" in the 1990s, the term "Zombies" was first coined. These companies earn just enough money to continue operating and service their debt. They do not have excess capital left to spur growth and need bailouts from banks to survive.
Currently, we identify these companies through the Interest Coverage Ratio (ICR). ICR= Earning Before Interest and Tax(EBIT)÷ Interest expense We identify a company as a Zombie if its Interest Coverage Ratio (ICR) has been less than 1 for at least 3 consecutive years and it is at least 10 years old.
India is home to the largest number of Zombie companies in Asia. From FY12 to FY22, zombie firms (among listed companies) doubled from 4.9% to 9.8%. In 2012, Credit Suisse's report "House of Debt" highlighted India's most indebted firms.
As of June 30, Vodafone Idea Ltd. had accumulated long-term debts exceeding 2.2 trillion rupees ($27 billion). Instead of investing in a fifth-generation telecom network, the company is grappling with financial challenges in covering the costs of the 5G spectrum it acquired in a 2022 auction
With a 7% domestic passenger share, Go Airlines filed for bankruptcy in early May and temporarily grounded its flights. Now rebranded as Go First, has been granted bankruptcy protection by the National Company Law Tribunal (NCLT) on Wednesday
With India leading the Asian Countries having the highest number of Zombie companies — It is time when the government along with RBI create an antidote or else, the apocalypse will turn out to be bad for the economy.
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