The Hindu Business Line : Textile sector seeks fund to revamp high cost debt

THE textile mills sector has petitioned the Government on the need to have a dedicated fund for realigning the high cost debt sourced by "financially weak but technically viable" units.

According to industry players, the current Debt Restructuring Package — which allows financial institutions to carry out debt swaps for textile units by sourcing low cost funds through the external commercial borrowings (ECB) route — has been largely ineffective in servicing the "financially weak units."

The package has been, according to the industry, largely catering to profitable units. Also, a number of smaller banks and financial institutions (FIs) have not been able to participate in the process since they are unable to access ECBs due to inadequate financial strength.

The Indian Cotton Mills Federation (ICMF) has written to the Government stating that the ECB route has not been found attractive enough by financial institutions and banks to effect any major restructuring of sick mills. "Currently, loss-making but potentially viable units which are the real target of the package are not being assisted by the banks and financial institutions since they find that the ECB route does not compensate them adequately," an ICMF official said.

Based on a Deloitte Haskins & Sells study, the federation has suggested the establishment of a textile restructuring fund, the creation of which was also suggested by the Steering Group led by former Planning Commission Member, Mr N.K. Singh.

Based on Deloitte's recommendations to ICMF, the federation has said that a fund with the corpus of Rs 4,000 crore would be able to save an estimated Rs 32,000 crore worth of textile assets from becoming redundant.

The Government had, in September 2003, announced the package for restructuring high cost loans of textile units. The package is applicable to all units in the organised sector with a minimum debt exposure of Rs 2 crore. Under the package, banks and FIs have been permitted to access ECBs and convert rupee term loans into foreign currency loans.