Subhiksha Trading Services, whose operations have come to a standstill, said it may sell shares to raise funds after lenders approve its debt restructuring plan under the banking provisions.

Lenders, led by ICICI Bank, have referred cash-strapped Subhiksha’s loan account to the corporate debt restructuring (CDR) mechanism, a system to deal with cases where multiple lenders are involved, after it reported its first quarterly loss and expressed its inability to clear dues to employees and property owners.

“Debt restructuring may require us to get some equity infusion. This would not be stake sale. It would rather be issue of fresh shares to existing or new investors,” R Subramanain, managing director and founder of Subhiksha, said.

Banks are also seeking a review of the retailer’s books to ascertain asset impairment, especially inventory impairment, which could have arisen in the last 3-4 months, due to strained operations.

The Chennai-headquartered retailer wants an additional funding of Rs 300 crore and a moratorium on interest and principal for two years. It is also negotiating with lenders for lower interest rates.

Subhiksha said it was also negotiating with banks for temporary support but wasn’t sure of the request being granted.

“We are not sure if such temporary support, pending CDR, would fructify,” he said.

Subramanian denied that he was planning to shut business or declare bankruptcy. “Surely not,” he said.

The company, which has a net worth of Rs 260 crore with an equity base of Rs 32 crore, has borrowed three times the size of its net worth to scale up operations. The company’s gross debt was estimated at around Rs 700 crore. The average cost of debt, which was estimated at 9 per cent last year, has gone up to 13 per cent during the first half of the year.

The Reserve Bank of India’s measures to cut rates and infuse additional liquidity has helped the retailer to lower the average cost of debt to 12 per cent in the third quarter ending December 2008.

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