This follows a meeting attended by representatives of the State Bank of Saurashtra (the consortium leader), State Bank of India and Bank of Baroda, on June 23 with the specific agenda of discussing the dismal performance of the company which had posted a staggering loss of Rs 271.43 crore for the year ended March 2000 as against a net profit of Rs 14.47 crore in 1998-99.

An important agenda item was the concessions sought by the company on interest rates and margins on stocks and debtors, which included deferring of interest payments for the quarter ended June 30 up to the next quarter and therafter for the quarter ended September 30, 2000, to the next quarter and subsequent regularisation of interest payments by January 2001.

The consortium decided to soften its tough stance since it is felt that the "company should be supported at such a critical juncture when the denim market is showing signs of improvement and the new capacities at Santej are increasing their production levels (in a) month-on-month basis". The consortium has, therefore, decided that the interest for the quarter ended June 2000 would be deferred by all banks up to September 25 while the interest for the quarter ended September 30 would be deferred to December 25, 2000. The interest for the December 2000 quarter would be paid by January 10, 2001.

The reschedulement was, in part, apparently necessitated by the withdrawal of normal credit extended by some of Arvind Mills' suppliers following fears about its poor financial health. The Rs 1,000 crore company had, therefore, requested all its lender banks to permit interest deferment on overdrafts as well as provide certain other concessions for working capital support. Among other things, Arvind has sought reasonable flexibility in the utilisation of working capital credit lines so that the operations of the company do not suffer.

In a letter written to its consortium of lender banks, which includes nine other banks apart from State Bank of Saurashtra, SBI and Bank of Baroda, the Arvind Mills management made a reference to an earlier report in The Financial Express about the company's financial health. The letter, inter alia, stated: "The news item published in The Financial Express dated April 20, 2000, has ruffled the confidence of the suppliers of critical items like cotton, naphtha and yarn. These suppliers have withdrawn the normal credits extended to the company leading to further pressure on the cash flow of the company." A copy of the letter written to the bankers in the possession of The Financial Express.

The Financial Express had carried a story about foreign lenders slapping a legal notice on Arvind Mills for defaulting on payments of external commercial borrowings of $75 million in April. The foreign lenders had also raised the issue of Arvind Mills' sale and lease-back transaction with ICICI. In addition, Arvind Mills had also defaulted on interest payment on term loans of around Rs 700 crore raised from the domestic market. At that time, the company's chief financial officer, Jayesh Shah, had confirmed both developments and had told this paper that though the company had defaulted on the March instalment payment, "it will be in a position to start repaying from end-September this year".

In the latest turn of events, however, this position appears to have changed -- as indicated by its new request for deferment of interest. The company has also requested the lead bank "to sanction an ad-hoc limit of Rs 20 crore to tide away the crisis." What made the going even tougher for the beleaguered company is the fact that the formation of a committee by oil companies recently and their decision to withdraw credits and discounts to all customers "resulted in cash and carry situation for procurement of naphtha with immediate outflow of about Rs 22 crore due to discontinuance of normal credits which were approximately for 45 days."

In its letter, Arvind Mills has requested all member banks to "allow us interest deferment in the form of overdraft or otherwise as decided in the mini-consortium meeting".

When contacted by The Financial Express CFO Jayesh Shah denied that Arvind was facing any problems with suppliers. He said credit for cotton purchase was still available, but yarn was always bought on cash basis. As for naphtha, the cash-and-carry system was applicable to all companies and not merely Arvind. Shah also declined comment on the letter written to the lenders' consortium.