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Business News/ Home-page / Lilliput working on debt recast plan
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Lilliput working on debt recast plan

Lilliput working on debt recast plan

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Mumbai: Retail firm Lilliput Kidswear Ltd has begun working on a corporate debt restructuring (CDR) plan and is in talks with a consortium of 10 banks for a 880 crore package.

The consortium includes both nationalized and private banks. The New Delhi-based company has already started consolidating its business as part of measures to cut expenses. It has shut 25 stores, besides closing four factories and three offices, and laid off employees.

The move comes after talks failed over a possible stake sale to private equity (PE) investors, including L Capital, arm of LVMH Moët Hennessy Louis Vuitton SA, the world’s biggest luxury goods group.

“We know CDR is a long process, but there are not too many options," Narula said. “We are not looking at PE funding now. Due to the current economic situation, global sentiments, issues such as GAAR (general anti-avoidance rules), we are not getting the valuation that suits us." L Capital did not respond to emailed queries.

Lilliput currently has 260 stores and posted revenue of 525 crore in 2011-12.

New Delhi-based Coralbay Advisors Pvt. Ltd is working with Lilliput on its debt recast proposal for banks.

On 19 May, Coralbay presented a restructuring proposal in the form of a preliminary flash report to the bankers.

“As part of this proposal, Lilliput has asked for various concessions such as a moratorium on repayment of interest and principal payable to the banks, reduction of applicable interest rates, conversion of working capital into term loans, etc., for bringing back the company from the mounting debt obligations," said Anil Khatri, senior partner at Coralbay, who has been involved in restructuring proposals for troubled retailers Vishal Retail and Koutons Retail India Ltd as well.

The restructuring proposal is being considered by the consortium of banks and will be referred to the CDR cell, which is constituted by the Reserve Bank of India, after necessary internal approvals have been obtained by bankers, Khatri said.

Lilliput moved court in early October to prevent PE firms Bain Capital Llc and TPG Growth from exiting it because of an alleged corporate governance failure. The two investors had accused Narula of fudging the company’s financial accounts. Narula, in turn, had said the PE firms were trying to halt the company’s planned 850 crore public offering and get hold of a majority stake.

Cash-strapped, over-leveraged companies have been opting for the CDR route. Hotel Leelaventure Ltd was recently referred to CDR cell to recast debt of 4,000 crore.

Over the last three years, at least three retail firms have opted for this. In September, bankers led by Indian Overseas Bank approved a CDR plan for Koutons.

The CDR package allowed a part of the working capital debt to be converted into working capital term loan, with a two-year suspension on interest and loan payments.

Vishal Retail initiated a CDR plan led by State Bank of India in end-2009. In 2011, PE firm TPG, along with Chennai-based Shriram Group, bought the wholesale and franchise business and retail undertaking of Vishal Retail.

In 2009, Subhiksha Trading Services Ltd also tried to revive itself through CDR, but its plan hit a dead end as banks displayed little interest in taking the proposal forward.

A CDR plan wouldn’t bring an end to liquidity woes, but provides a temporary respite to stressed companies, said Siddharth Bafna, partner and head of the corporate finance and transaction services practice at Lodha and Co. “It does not serve as an end to their problems. Companies still have to improve their performance and pay off their restructured debt," he said.

deepti.c@livemint.com

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Published: 23 May 2012, 11:44 PM IST
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