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Business News/ Companies / ICICI Bank latest to file winding-up petition against SKNL

ICICI Bank latest to file winding-up petition against SKNL

S Kumars Nationwide had a consolidated debt of `4,483.98 crore at the end of March 2013

The weak financial position of the company is reflected in the proportion of pledged shares, which made up 93.7% of the promoter group holding at the end of March, compared with 66.86% four years earlier. Photo: Priyanka Parashar/MintPremium
The weak financial position of the company is reflected in the proportion of pledged shares, which made up 93.7% of the promoter group holding at the end of March, compared with 66.86% four years earlier. Photo: Priyanka Parashar/Mint

Mumbai: A bunch of creditors is breathing down the neck of S Kumars Nationwide Ltd (SKNL), a textile maker that owns the Reid and Taylor suits brand, as ambitious expansion plans have left the company saddled with debt.

ICICI Bank Ltd, the nation’s second-largest bank by assets, joined this group on 15 April when it filed a winding-up petition against SKNL in the Bombay high court, according to the court’s website.

India Debt Management Pvt. Ltd, Ningbo ETDZ Holdings Ltd and ANZ Banking Group Ltd have also moved court seeking winding up of SKNL. IL&FS Financial Services Ltd has filed a monetary suit against the company.

SKNL had a consolidated debt of 4,483.98 crore at the end of March 2013, according to corporate database Capitaline. The company’s consolidated net sales dropped 21.5% to 4,990.1 crore in fiscal 2013 from 6,355.25 crore in the previous year. It made a consolidated net loss of 353.95 crore in fiscal 2013 against a profit of 470.84 crore in fiscal 2012.

Earnings in fiscal 2014 are yet to be released.

“The company has received winding up notices from the lenders mentioned in your email. The company is dealing with them suitably by settling their dues commercially and is in dialogue with them," said J. S. Shetty, director-finance and group chief financial officer, in response to an emailed questionnaire.

“ICICI Bank doesn’t comment on client specific issues," a spokesman said in reply to an email seeking comment. An ANZ spokesperson, too, refused comment. Mint couldn’t ascertain the amount at stake in the petitions of these two banks.

The suit filed by India Debt Management relates to non-payment of debentures issued by S Kumars, said a lawyer familiar with the development. “Despite several notices the company till date has not returned the money. In fact, the IDM nominee director on the board of S Kumars quit because of the dispute," the lawyer said, declining to be identified.

That nominee was Susheel Kak, who heads India Debt Management, an unit of ADM Capital. SKNL’s 2012-13 annual report says Kak quit on 10 January 2013.

“We have filed a case against S Kumars Nationwide in the high court. But we cannot divulge details of the case as the matter is sub judice," Kak said.

The 2012-13 annual report states SKNL had issued non-convertible debentures worth 264.06 crore to India Debt Management at an annual interest rate of 19%. Mint couldn’t ascertain if SKNL has repaid part of this sum.

The case involving Ningbo ETDZ, a Chinese firm, involves a lower amount. In its petition, Ningbo said it had not received payment for an order of garments worth $632,566.53 ( 3.8 crore at Tuesday’s exchange rate) delivered to SKNL in 2012.

According to Darshan Mehta, a lawyer from Dhruve Liladhar & Co., representing Ningbo ETDZ, SKNL has only been “seeking for extensions from the petitioners (Ningbo ETDZ) to repay them".

An order passed by Justice G.S. Patel of the Bombay high court on 25 April said SKNL did not file its reply to Ningbo’s plea in time. “This is a delaying tactic, and a practice that needs to be most firmly discouraged. Court-set schedules are not to be ignored. They will be adhered to."

“The petitioners understand that the respondent company (SKNL) is in tremendous financial difficulties and is in the process of disposing of its assets. If the respondent company is permitted to dispose of its assets, nothing would remain in the respondent company to the benefit of its creditors," Ningbo ETDZ said in its plea seeking the winding-up of SKNL.

Mint has reviewed copies of the petition filed by Ningbo.

SKNL has denied non-payment to Ningbo ETDZ.

“The winding up petition filed by Ningbo ETDZ Holdings Ltd is misconceived and not bonafide and is being dealt with accordingly. Since the matter is sub-judice, we do not wish to comment any further," said Shetty of SKNL.

While S Kumar’s stand-alone debt-to-equity ratio of 1.78 times at the end of September 2013 may not look threatening, it doesn’t take into account the “other current liabilities" of the company worth 2,025.52 crore, a large part of which is likely to be debt-related if one extrapolates from their 2012 13 balance sheet.

The company’s earnings are also under pressure, denting its ability to service debt.

SKNL’s interest coverage ratio—earnings before interest and tax as a proportion of interest—has consistently been less than 1 for the past five quarters. At the stand-alone net profit level, the company has been making losses in the last six quarters.

“Debt over-leveraging is the biggest drag on the company," said a person close to the company’s promoters, requesting anonymity.

“S Kumars has expanded like any other textile company, encouraged by capital goods subsidies," he said. However, following the debt servicing issues, it lost good talent and slipped into “mismanagement of affairs", he said.

The weak financial position of the company is reflected in the proportion of pledged shares, which made up 93.7% of the promoter group holding at the end of March, compared with 66.86% four years earlier.

Nitin S. Kasliwal, chairman and managing director of S Kumars, was ambitious like any other textile manufacturer and led the company into distribution, brand and manufacturing, said a former employee of SKNL.

“He was thinking big after selling a stake to the sovereign wealth fund Government of Singapore Investment Corp. (GIC) in Reid and Taylor. He was expecting big valuation as the most stringent wealth fund in terms of valuation had given him a great deal," he said.

GIC invested 900 crore in Reid and Taylor in 2008 for a 25% stake. However, later, the company couldn’t go through with its initial public offering of Reid and Taylor.

While part of the company’s troubles can be blamed on the slowdown in domestic and overseas demand for textile products, some analysts aren’t buying the argument. About “60% of the problems are company-specific", said S.P. Tulsian, an independent stock market analyst, adding that a “revival looks difficult at this point of time".

Narayan K. Seshadri, chairman, Tranzmute Capital and Management Pvt. Ltd, a business advisory firm, believes a revival is possible.

“S Kumar’s story is similar to any other Indian corporates that bought companies overseas without taking the cashflows into account before the economic slowdown hit the market," he said. “Still there is a hope for revival as Reid and Taylor brand is strong in the Indian market. But it all depends on what sort of sacrifices that the company is making to revive."

A stronger rupee is hurting the prospects of Indian textile firms. In February, India Ratings and Research Pvt. Ltd cautioned that sizeable debt-funded projects could lead to a rating downgrade across the sector in the near-term/gestation period, while maintaining a “stable outlook" on its rated textile companies.

Early last month, SKNL’s board approved issuing 97.4 million preferential shares to the promoter group. At a face value of 10, it would fetch the company 97.4 crore, which could alleviate some of the company’s problems.

SKNL’s share price, however, is languishing at less than 5 a unit, far from the highs of about 80 seen in mid-2010. On Tuesday, the stock closed 3.94% lower at 4.63 on BSE, while the Sensex fell 0.73% to 22,466.19 points.

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Published: 29 Apr 2014, 11:34 PM IST
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