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Arvind Mills debt rejig plan being worked out

Vinod Mathew

AHMEDABAD, Dec. 14

THE major lenders to the debt-ridden Arvind Mills Ltd (AML) are understood to have tentatively agreed upon a debt restructuring plan. At stake is Rs 2,600 crore in debt portfolio of the company.

But the rejig plan, which has put forth four options to the lenders, can become a reality only if they agree to a cumulative write-off to the tune of Rs 600 crore.

This is the outcome of the November 14 meeting of all the lenders with the Arvind management and the scheme is currently undergoing legal validation. It is expected that the draft copies of the loan restructuring plans would reach the lenders by the end of this month. The cut-off date for the restructuring exercise is April 2001.

According to reliable sources in the banking industry, the restructuring plan has been given the ``in principle'' nod by all the major lenders, including the Union Bank of Switzerland (UBS), whose exposure in AML's $125-million floating rupee note (FRN) currently stands at $93 million.

With AML having begun the process of freezing its repayments including the penal interest pay-outs in late 1999, it is understood that any form of settlement would be a bonus for UBS, which had as good as written off the exposure in the Ahmedabad company as a bad debt. The seven-year loan, which was raised in 1997, would fall due in 2004.

However, the AML Chief Financial Officer, Mr Jayesh Shah, said the restructuring exercise was far from over, as there were many aspects that still needed to be looked into. It would take at least a month before the loan rejig plan could be said to be fir mly in place, he said.

The restructuring plan is understood to have suggested four options. The first allows for the immediate settlement of the outstandings at 45 per cent of the total amount owed by AML, with the balance being written off. The second option allows for a 48-p er cent settlement, but calls for a six-per cent reinvestment in the company.

The third option allows a five-year period for repayment of 60 per cent of the outstandings, with 30 per cent to be repaid immediately with the rest staggered over the third, fourth and fifth years.

The fourth option is for a staggered repayment of the entire amount over 10 years, with the first payment at around 10 per cent, starting only in the third year.

Meanwhile, the consortium of lenders is mulling a new debt fund for AML which will be required to retire the existing senior debt. The mandatory reinvestment by those who already have a stake in AML would be supplemented by Rs 100 crore that the company is getting ready to raise through sale of some of its real estate in Ahmedabad and Bangalore.

Those institutions such as ICICI and IDBI, which have significant exposures in AML, are said to be keen on the new debt instrument, as it will allow many smaller debtors to take advantage of the rejig plan, thus, making their own exposure in Arvind more secure.

However, one major bank that has refused to buy the restructuring plan for AML's debt portfolio is the Bank of Nova Scotia, Canada, which was the lead bank in the syndicate that had lent $75 million as ECB to the denim major. The other members of the syn dicate are Commerzbank, Germany, Societie General, France and the State Bank of India.