Search the Internet          Tips  Sites: Finance, Investment

Arvind Mills sued by lenders

Ailing Indian textiles company Arvind Mills Ltd is being sued by some lenders who were unhappy with a debt restructuring plan, but they constituted a tiny minority of its debt, a company official said on Wednesday.

"The lenders who are opposing the plan account for only four percent of our debt," Jayesh Shah, chief financial officer, said in a faxed statement.

He was responding to a newspaper report that two creditors, Bank of Nova Scotia and Commerzbank, had sued the firm in a London court.

Those two banks, which were among a group that lent Arvind Mills $75 million, are also suing ICICI, an Indian financial services company which acted as security agent and trustee for the loan, the newspaper said.

It said 11 other lenders in the loan syndicate were likely to join the two in the suit.

"It is practically impossible to get the consent of 100 percent of the lenders in a situation where there are over 60 lenders with varying expectations," Shah said.

Last week the company's board approved its debt restructuring plan, under which Arvind will repay Rs 5.5 billion of debt without interest. Its remaining debt of Rs 21.5 billion will be restructured, and lenders paid low interest rates on the five to 10-year debt.

The restructuring plan was worked out by lenders holding 58 per cent of the company's Rs 27 billion in debt.

Shah said the company will go ahead with the restructuring proposal if it received the nod from lenders holding in aggregate over 75 per cent of its debt.

"Dissenting lenders will continue to be governed by the old contracts with the company with a right to sue the company to recover their dues," Shah said.

The creditors are seeking a decree against the borrower for debts totaling $18.3 million and are also seeking damages against ICICI for "serious breach of their fiduciary duties and trusteeship obligations", the paper said.

The report said ICICI had secured its interest in respect of Rs 4.91 billion owed to it by Arvind Mills to the detriment of other lenders. It did so through a sale and lease back arrangement, and the transfer of Arvind's garments division to Arvind Brands, a company in which ICICI has a majority stake.

"The cumulative effect of undertaking the sale and lease-back transaction and hiving off the garments division was that Arvind Mills repaid Rs 515 million of ICICI's loan repayment for the current year and cleared all loan outstandings towards ICICI for last year and the current year," the paper said.

It said those moves violated terms giving other creditors first claim on Arvind Mills' assets.

Tell us what you think of this report