Sanjay Lalbhai-owned Arvind has defaulted on its interest payments to lenders in January, highlighting the difficult times faced by big corporations. This is the first time in almost four years that the denim manufacturer has defaulted on repayments to term lenders.
The default comes even as banks led by State Bank of India, Bank of Baroda and others are restructuring the loans of the textile major. Arvind Products, a unit of the company, has failed to make payments to IDBI Bank.
Credit rating agency Crisil believes that Arvind may not be able to meet some of the debt obligations, which would be under consideration for rescheduling, due this month. The agency has downgraded Arvind and its subsidiary by three notches to ‘default’ category on concern that internal accruals are unlikley to suffice because of the weak buisness environment.
Crisil has downgraded the ratings on the bank loan facilities of Arvind to ‘D/P5’, from ‘BBB-/Negative/P3’. While instruments rated ‘D’ are in default or are expected to default on scheduled payment dates, P5 rating indicates that the instrument is expected to be in default on maturity or is in default. Crisil Senior Director Raman Oberoi said, “Both Arvind and Arvind Products have paid their dues till December and are in the process of re-scheduling their loans.
The textile industry is under pressure and we have downgraded Arvind due to ‘timelessness’ of the payments.”
Meanwhile, brushing aside Crisil’s rating as immature and deliberate, Arvind officials said that its lead bank, State Bank of India (SBI), had intimated the rating agency about lenders’ approval on rescheduling of loan repayments. The denim major claims to have received approval from the Bank of Baroda, UCO Bank and ICICI Bank for rescheduling term loan payment worth Rs 15 crore each for January and February 2009.
“Arvind had sought lenders’ approval for rescheduling of loans for January 2009 in the last week of December 2008 itself. Crisil has erred in downgrading even after our lead bank intimated the agency about the approval,” said Milan Shah, deputy chief financial officer of Arvind.
A senior IDBI Bank official said Arvind had not been referred to corporate debt restructuring (CDR) scheme as banks had already negotiated on the loan restructuring. Under the CDR scheme, lenders have received 13 cases from the textile sector with an exposure of about Rs 2,000 crore.