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Business News/ Companies / News/  Partial repayment by Lilliput defuses Bangladesh tension
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Partial repayment by Lilliput defuses Bangladesh tension

Retail firm pays back small portion of $5 million pending after months of mediation by India’s commerce ministry

Lilliput promoter Sanjeev Narula confirmed the payment of the amount to Bangladesh garment supplier Panshi garments, but disputed the outstanding amount, saying it was $1.5 million. Photo: Hemant Mishra/Mint (Hemant Mishra/Mint)Premium
Lilliput promoter Sanjeev Narula confirmed the payment of the amount to Bangladesh garment supplier Panshi garments, but disputed the outstanding amount, saying it was $1.5 million. Photo: Hemant Mishra/Mint

(Hemant Mishra/Mint)

New Delhi/Mumbai: After months of mediation and prodding by the commerce ministry, beleaguered retail firm Lilliput Kidswear Ltd has paid a small portion—$21,520—of its pending $5 million dues to Bangladeshi garment suppliers, defusing some of the tension between the two countries.

Bangladesh had sought the mediation of the Indian government in the matter. While it usually doesn’t get involved in such disputes, the government made an exception and interceded on behalf of the suppliers.

The commerce ministry convinced the promoter of Lilliput, Sanjeev Narula, to make at least a part payment to the supplier. The commerce ministry informed the officials of the Bangladesh trade ministry about the payments at the joint working group meeting on 13-14 June between the trade departments of the two sides, said a commerce ministry official who didn’t want to be identified.

The Indian government has informed Bangladesh that the first instalment has been released by Lilliput and that it has promised to release the rest of the money soon.

“The Lilliput promoter Narula told us that he has released the fund from his own personal account," the commerce ministry official said.

The commerce ministry informed its Bangladeshi counterpart during the joint working group meeting such disputes should be resolved by the respective chambers of commerce or arbitration.

“Typically, governments mediate in issues related to non-payments of dues when the sums involved are large and could impact trade relations between the two nations. For example, in the case of Vodafone tax dues, the British government stepped in. It’s unusual for governments to step in when amounts are so small," said Vikram Utamsingh, an independent investment industry expert.

Narula confirmed the payment of the amount to Bangladesh garment supplier Panshi garments. He, however, disputed the dues figure, saying that the outstanding amount was $1.5 million and said it will be paid back by 20 July.

Narula said problems arose because of the tussle with the private equity (PE) investors who used to hold a stake in the company.

US PE investors TPG Growth and Bain Capital Llc competed fiercely and bought an aggregate 45% stake in Lilliput in 2010 through an auction-like situation before their relationship with the retailer soured. The PE investors eventually joined forces against Narula, accusing him of doctoring the company’s accounts.

Narula, in turn, said Bain and TPG were trying to stall a public issue of shares worth 850 crore and seize majority control of Lilliput. He filed charges against the investors in the Delhi high court late last year. Mint reported in October 2011 that Lilliput was seeking an out-of-court settlement with Bain and TPG.

TPG and Bain returned their combined 45% stake in Lilliput Kidswear to Narula last year for long-term considerations as part of an agreement.

Narula said the Bangladesh suppliers delayed shipments by three-five months in 2011, by when the letters of credit with banks expired. “Because of our problem with the private equity partners, banks wanted to reduce their exposure and returned the letters of credit. We had full intention to pay our suppliers in Bangladesh. It is actually the banks who defaulted, not us," he argued.

Narula said he’s getting additional funding from a consortium of banks by 15 July. However, he declined to name the banks or say how much he’s getting.

In 2005-2007, retailers such as Subhiksha Trading Services Ltd and Vishal Trading Ltd borrowed heavily to fund aggressive expansion plans. Subhiksha had to shut after failing to repay debt.

Vishal Retail, which had debt of 730 crore, was sold for 70 crore to TPG Capital and the Shriram Group in a distress sale.

Siddharth Bafna, partner and head of corporate finance and transaction services practice at Lodha and Co., a financial consultant, said things are yet to change for the better for Indian retailers.

“I don’t think the first half of 2013 has necessarily been the best for retailers at large. Although macros continue to be strong and the fundamental story that organized retail is going to continue to grow is intact, there is still a lot of concern amongst retailers due to the current economic climate, which is resulting in reduced consumption," he said.

Garment imports from Bangladesh picked up after Prime Minister Manmohan Singh announced the duty-free import of 46 textile items in September 2011 as a goodwill gesture during his visit to the neighbouring country, even though both the countries are fierce competitors for garment markets in the US and the European Union.

However, India imposed a countervailing duty on import of ready-made garments in March, a matter raised by Bangladesh at last month’s meeting of the joint working group.

Indian commerce ministry officials advised Bangladesh officials to take up the matter through diplomatic channels for the consideration of the finance ministry.

In 2012-13, Bangladesh became India’s largest trading partner in the subcontinent, replacing Sri Lanka. During the year, India’s trade with Bangladesh and Sri Lanka stood at $5.7 billion and $4.7 billion, respectively.

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Published: 04 Jul 2013, 11:30 PM IST
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