Banks can give second chance to ailing sugar cos
The RBI has allowed banks to give ailing sugar companies a second chance to restructure their loans. So far, a loan can be restructured only once under the corporate debt restructuring (CDR) forum.
By Sangita Mehta & Nidhi Sharma, TNN |
MUMBAI: The Reserve Bank of India has allowed banks to give ailing sugar companies a second chance to restructure their loans. So far, a loan can be restructured only once under the corporate debt restructuring (CDR) forum, a platform where all banks jointly settle a loan account with the borrower.
In a letter to the CDR cell early this month, RBI has said that a repeated restructuring in sugar companies would be allowed provided past debt restructured under the CDR mechanism is fully repaid or settled as per the CDR terms. RBI has said that a sugar company will be eligible for a repeated restructuring in cases where the debt restructuring under the earlier CDR mechanism is not a subject matter of second or subsequent restructuring and is also being duly serviced as per the terms of the restructuring package.
The CDR cell, which comprise chiefs of large commercial banks, had approached RBI in November seeking relaxation to undertake a second round of restructuring for some sugar companies.
Industry sources said loans of around Rs 500 crore will come under repeated restructuring. Companies that are being referred under the second round of restructuring include Mawana Sugar, Simbaoli Sugar and Dhampur Sugar.
Sugar companies suffered heavily as the industry saw bumper production, much higher compared to consumption. Sugar prices in the market fell below the production cost and consequently, the sugar mills faced problems in making payments to farmers. In 2006-07, the country produced over 29 million tonnes of sugar while domestic consumption stood at 19-20 million tonnes.
Ban on sugar exports until December 2006 also added to mill owners grievances. In fact, when the ban was lifted in January, sugar prices in the overseas market had fallen and sugar companies could not take advantage of surplus production.
Profit margins of sugar companies were eroded because of low sugar prices and poor realisation in the domestic and international markets, making it difficult for them to honour their commitments to lenders. Industry sources say that the situation was worst in UP compared to Maharashtra — the two big sugar producing states.
The sugar mills owe close to Rs 1,100 crore to farmers in UP. This is partly because the minimum price to be paid to the farmer for procurement of cane is highest in UP. The UP government has fixed the minimum price over and above that stipulated by the central government.
In a letter to the CDR cell early this month, RBI has said that a repeated restructuring in sugar companies would be allowed provided past debt restructured under the CDR mechanism is fully repaid or settled as per the CDR terms. RBI has said that a sugar company will be eligible for a repeated restructuring in cases where the debt restructuring under the earlier CDR mechanism is not a subject matter of second or subsequent restructuring and is also being duly serviced as per the terms of the restructuring package.
The CDR cell, which comprise chiefs of large commercial banks, had approached RBI in November seeking relaxation to undertake a second round of restructuring for some sugar companies.
Industry sources said loans of around Rs 500 crore will come under repeated restructuring. Companies that are being referred under the second round of restructuring include Mawana Sugar, Simbaoli Sugar and Dhampur Sugar.
Sugar companies suffered heavily as the industry saw bumper production, much higher compared to consumption. Sugar prices in the market fell below the production cost and consequently, the sugar mills faced problems in making payments to farmers. In 2006-07, the country produced over 29 million tonnes of sugar while domestic consumption stood at 19-20 million tonnes.
Ban on sugar exports until December 2006 also added to mill owners grievances. In fact, when the ban was lifted in January, sugar prices in the overseas market had fallen and sugar companies could not take advantage of surplus production.
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Profit margins of sugar companies were eroded because of low sugar prices and poor realisation in the domestic and international markets, making it difficult for them to honour their commitments to lenders. Industry sources say that the situation was worst in UP compared to Maharashtra — the two big sugar producing states.
The sugar mills owe close to Rs 1,100 crore to farmers in UP. This is partly because the minimum price to be paid to the farmer for procurement of cane is highest in UP. The UP government has fixed the minimum price over and above that stipulated by the central government.
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