Cotton price volatility forces Pradip Overseas to opt for CDR

Company seeks to convert interest on current debt into funded interest term loan

Volatility in cotton prices, coupled with just 50 per cent production capacity utilisation, has forced Ahmedabad-based Pradip Overseas Ltd (POL) to opt for corporate debt restructuring (CDR).

Having received a nod for this from the affected banks and financial institutions, the company recently got its board of directors’ approval, too.

It is looking to turn part of the working capital into a term loan. And, to convert the interest on the current debt into a funded interest term loan (FITL).

“We have a total debt of Rs 1,100 crore. We’re going for a CDR and  asking for a 10-year term. At the end of the term, the total debt will not exceed Rs 1,750 crore. We are also unable to pay interest and, hence, have sought to convert it into an FITL," said J S Negi, director (technical).

The company owes the debt to a consortium of banks and financial institutions, led by State Bank of India (SBI) and including Canara Bank, Allahabad Bank, Bank of India, United Bank of India, Karur Vysya Bank, Punjab National Bank, State Bank of Patiala, Indian Overseas and Standard Chartered.

“We took a working capital loan for the textile business but faced a lot of volatility in cotton prices in 2012-13. Also, suddenly our production capacity decreased to 50 per cent because we didn't have enough capacity at our effluent treatment plant (ETP). Hence, we are going for a CDR and have sought a moratorium (on payment) of two years,” Negi said.

He added they were investing around Rs 50 crore to expand the ETP capacity from the current 1.5 million litres a day to five mld. "Currently, our ETP capacity is not enough to handle our entire (production) capacity. Once the ETP capacity is expanded in the next four to five months, our textiles’ production capacity utilisation will improve," he said.

Pradip’s textiles manufacturing capacity is around 140 million metres per annum (mma). Utilisation is 70 mma.

Having received the central government's nod for withdrawal of an earlier approval for its Special Economic Zone (SEZ), the company is  to set up an industrial park instead. Titled 'Bhamsara Industrial Hub' and located in Bavla taluka of this district, the park will be spread across 1.8 million sq yds and is to see a little over 100 industrial units in textiles, engineering, automobile ancillaries, logistics and warehousing activities.

"The implementation of MAT (Minimum Alternate Tax) was having an adverse effect on our SEZ plans, which forced us to seek withdrawal of its formal approval. However, we wanted to make the most of the 1.8 million sq yds available with us. Hence, we have launched the industrial hub. We have already received 20 per cent of the (intended) bookings from several interested companies," Pradip Karia, chairman of Pradip Overseas, had told Business Standard earlier.

The group, which manufactures home textile products under the  'MYCK' brand, had invested Rs 100 crore for the land at Bhamsara. It says after full completion in five years, there would be Rs 3,500 crore  of investments and would generate a little over 10,000 jobs for skilled and unskilled workers.

For 2012-13, Pradip Overseas had a turnover of close to Rs 1,000 crore but incurred a net loss of Rs 112.6 crore.