Home / Knowledge / News / Textiles / Debt restructuring imminent in Indian cotton textile
Debt restructuring imminent in Indian cotton textile
17
Jan '12
Fitch Ratings says cash losses in the Indian cotton textile sector are impairing the debt servicing capacity of manufacturers, making debt restructuring imminent. The agency also notes that while the Indian government's debt restructuring proposal for the textile sector will provide temporary relief from liquidity pressures, it will not stem deterioration in the capital structure of cotton textile companies, most of which are heavily-geared.

The Textiles Ministry recently recommended a moratorium extension by Indian banks on loans extended to Indian textile companies, after cotton textile manufacturers reported operating losses for H112. The operating losses were most pronounced in cotton yarn manufacturing and lower-end fabric due to exceptional volatility in cotton prices, making them more prone to severe liquidity risks. Exposure of Indian banks to the textile sector is estimated at INR600bn, of which 75% is to the troubled cotton yarn sector.

"Restructuring of loans will delay the deleveraging of Indian textile companies as repayments are rescheduled or deferred, keeping debt levels high," says Tanu Sharma, Associate Director in Fitch's Corporates team. "Leveraging continues to be impacted adversely by high working capital debt and lower margins."

Fitch notes that because of cash losses in H112 and the fact that funds are tied up in inventories, debt repayment capacity of some textile companies has deteriorated, leading to over-utilisation of working capital limits in H112. In some cases, companies have defaulted due to an inability to obtain timely increase of working capital facilities, as banks tightened lending criteria for the sector.

"Given the uncertainty over global economic recovery and, consequently, around overseas demand for textiles, the risk is that cotton textile companies, hit by cash losses or with large debt amid ongoing capex, would need to undergo a financial restructuring," says Ms Sharma.

Should the extended moratorium be made available to all textile companies, Fitch does not preclude the possibility that some companies which are not in immediate need of liquidity may also opt for the extension as they had done during the 2008-2009 slowdown. Fitch assesses restructurings in line with its Distressed Debt Exchange Criteria which entails making an assessment as to whether or not a restructuring should be treated as distressed and taking appropriate rating actions.

Demand for cotton and cotton products was weak between May 2011 and November 2011 as increased inventories and liquidity pressures caused textile mills to postpone buying of cotton and yarn.

EBITDA margins of cotton yarn manufacturers fell in H112 as companies sold off the high-cost inventories acquired in H211 at the cost of lower margins and booked losses on forward contracts for cotton purchase. Margin recovery is expected for most textile companies in Q4 FY12 on the back of falling cotton prices although potentially weaker-than-expected overseas demand could offset the impact of such recovery.


Must ReadView All

Courtesy: American & Efird

Textiles | On 20th May 2018

A&E introduces Repel

American & Efird (A&E), a global leader in industrial sewing thread...

Archroma working with House of Denim Foundation

Textiles | On 20th May 2018

Archroma working with House of Denim Foundation

Archroma, a leader in colour and specialty chemicals, has joined...

Courtesy: Amazon

Textiles | On 20th May 2018

Amazon opening first fulfillment centre in Tucson

Amazon.com is opening its first fulfillment centre in Tucson, which...

Interviews View All

Smarth Bansal
Colorjet India Limited

We would like to venture more companies into the Indian market

Rashi Menda
Zapyle

Every fifth sale we make on Zapyle is a repeat purchase

Sanjay Yagnik
Maa Tex Speciality

‘We suggest reducing dosage of sizing chemicals to reduce sludge...

Harmeet Singh

New Delhi-based Jogindra Industries Private Limited provides an assortment ...

Harsh Shah

Established in 1956 with a small beginning, Embee today manufactures a...

Kalai Selvi

Vidyashilp Academy in Bengaluru is the country's first Fairtrade School....

Mark Paterson
Technical Absorbents Ltd

Mark Paterson, R&D manager of Technical Absorbents Ltd talks about Super...

Eamonn Tighe
Nature Works LLC

Eamonn Tighe, Fibres and Nonwovens - Business Development Manager of...

Marten Alkhagen
Swerea IVF AB

Marten Alkhagen, Senior Scientist - Nonwoven and Technical Textiles of...

Sanjukta Dutta
Sanjukta's Studio

<b>Sanjukta Dutta</b> creates unique garments by clubbing prints of...

Wendell Rodricks
Wendell Rodricks

"We should not compare India and the West. There are things we do that...

Pranav Mishra
Huemn

Designers Pranav Mishra and Shyma Shetty’s Huemn is known for its...

Press Release

Press Release

Letter to Editor

Letter to Editor

RSS Feed

RSS Feed

Submit your press release on


editorial@fibre2fashion.com

Letter To Editor






(Max. 8000 char.)

Search Companies





SEARCH

Leave your Comments


May 2018

Subscribe today and get the latest update on Textiles, Fashion, Apparel and so on.

news category


Related Categories:

Advanced Search