Shree Renuka Sugars files for judicial protection for its Brazilian subsidiary

Approval will allow the company for loan restructuring, draw up long term turn around plan

Shree Renuka Sugars Ltd (SRSL), the country’s largest sugar refiner and ethanol producer, has filed for judicial protection for its Brazilian subsidiary, Shree Renuka do Brasil Participacoes, together with all of its subsidiaries (collectively, Renuka Brazil) in the local designated court in the state of Sao Paulo in that country.

Under Brazilian law, if a company fails to service debt for six months, it can file for protection, seeking restructuring of loans. After acceptance of the request, Renuka Brazil will be under judicial protection for six months, during which it will have to present a plan to the court for approval, with the creditors. Judicial protection allows a corporate borrower to negotiate with its lenders for restructuring of loans, with a lower interest rate.

Approval needs no more than 75 per cent of lenders to agree. Renuka Brazil expects to present a plan for such approval of the creditors by the end of December.

“In Brazil, unlike India, there is a Chapter 11 law, just like the United States, which provides protection to companies not able to service their debt. There is (then) a standstill on all payments to creditors, including the interest, while you work out a plan,” said a company official.

Since the acquisition in 2010, Renuka Brazil has seen two drought years. Also, sugar prices remained low, resulting in a sharp decline in profitability over the years.

There have been losses for two years and servicing the current debt of $650 million cannot be supported with the current earnings.

“So, we decided to seek judicial protection. Under court protection, therefore, we are going to work out a plan for deep restructuring, during which no legal proceedings will be entertained, including the attachment of assets for not servicing lenders’ debt,” the official said.

He added that the underlying operating business has been steady this year in these companies, with combined cane crushing of 5.7 million tonnes till Sunday. SRDPBL has two subsidiaries in Brazil — Renuka do Brasil SA, located in Sao Paulo, and Renuka Vale do Ivai SA, in Parana.

“We believe restructuring of debt with a long-term sustainable vision would turn around the business in the next few years,” said the official. For 2014-15, consolidated debt on the parent company was Rs 8,897 crore. For the June quarter, SRSL had a net loss of Rs 227 crore on revenue of Rs 1,550 crore, after reporting a net loss of Rs  295 crore on a turnover of Rs 5,744 crore for 2014-15.

The SRSL share price on the BSE fell by 3.1 per cent to Rs 7.49 on Tuesday.