The stand-off between Lilliput Kidswear and its private equity investors over alleged doctoring of accounts has led to a default on payments to lenders. Sources said banks have suspended a term loan to the retailer, resulting in Lilliput defaulting on R35-crore short-term payouts that were due this week.
Following the default in making payments on money market instruments to Bank of India and Tata Capital, rating agency Icra downgraded Lilliput?s R100-crore long-term bank funds to the high-risk ?C?, down from the stable rating assigned in August last year. Icra also downgraded another short-term fund of R125 crore, choking the retailer of working capital required for operations and money needed to service immediate debts.
A person close to the situation said lenders including Allahabad Bank, ICICI Bank and Axis Bank ? which were expected to release R200 crore in term loans to Lilliput in phases ? will meet the company?s management later this week.
The meeting will discuss the row between the promoters and foreign PE funds including Bain Capital and TPG Capital which collectively own 45% in the company. Bain and TPG had jointly invested around $86 million to pick the stake in the retailer in early 2010.
The dispute surfaced earlier this month when Lilliput approached the Delhi High Court in a bid to restrain Bain and TPG from discussing with banks about an alleged misrepresentation of the retailer’s accounts. FE was the first to report on the dispute in its edition dated October 7.
The accusation of fudged accounts came even as the retailer was preparing to file documents for a Rs 850-crore public issue. Since then, six directors and external auditor SR Batliboi have resigned. Bain and TPG have demanded Lilliput’s books be re-audited, said a source. He said KPMG has declined to re-audit while the PE funds have suggested Deloitte.
Meanwhile, PE funds have filed their reply in court alleging that Lilliput has failed to correctly state its accounts. ?The respondent acted in the best interests of the petitioner company in ensuring that the allegations of financial irregularities were brought to the notice of the Board. It is further submitted that the respondent could not possibly have ignored these allegations of financial irregularities,? the reply filed by BC India Private Investors, the fund through which Bain had invested in Lilliput said.
Sanjeev Narula, managing director of Lilliput declined to comment citing the ongoing court case.
