Home / Knowledge / News / Textiles / Debt restructuring imminent in Indian cotton textile
Debt restructuring imminent in Indian cotton textile
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

Textiles | On 20th Oct 2016

Indian polyester market demand grows 14% in Q2 FY17: RIL

The Indian polyester market witnessed a demand growth of 14 per cent...

Fashion | On 20th Oct 2016

Replay to explore new markets in 2017

Replay, the iconic Germany based denim brand, is planning to get into ...

Textiles | On 20th Oct 2016

Pakistan proposes Rs200 bn for textile sector revival

A bailout package of Rs 200 billion has been proposed by the Pakistan ...

Interviews View All

Sunil Kumar Sharma
Loknayak JPNSSSG Ltd

'The blend of cotton–linen yarn has high demand in the domestic and...

Angelina Francesca Cheang

'Consumers in the age-group 21 to 38 are driving the activewear trend'

Karan Suratwala
Key Textile Accessories Private Limited

Chinese imports are destroying the supply chain

Silke Brand-Kirsch
Schlegel und Partner

Silke Brand-Kirsch, executive partner of Schlegel und Partner, a leading...

Kevin Nelson

Kevin Nelson, Chief Scientific Officer, TissueGen discusses the growing...

Urs Stalder
Sanitized AG

Urs Stalder, CEO, Sanitized AG, talks about the increasing use of hygiene...

Wendell Rodricks
Wendell Rodricks

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

Mike Hoffman
Gildan Activewear SRL

Gildan Activewear, a manufacturer and marketer of branded clothing and...

Pranav Mishra

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


Letter To Editor

(Max. 8000 char.)

Search Companies

October 2016

October 2016

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


Browse Our Archives


Advanced Search