JC Penney of the US and Laura Ashley of the UK among those who have filed for bankruptcy
Amid massive cancellation of orders and a demand slump in key markets in the wake of the Covid-19 pandemic, Indian garment exporters are also facing a new threat now: payment defaults by scores of American and European buyers who have shut shop or filed for bankruptcy.
Exporters have an exposure of about Rs 100 crore to just two large retail chains – JC Penney of the US and the UK’s Laura Ashley – that have turned insolvent, according to an initial assessment by the state-run Export Credit Guarantee Corporation (ECGC) that extends pre-and-post-shipment cover to exporters.
While the Apparel Export Promotion Council (AEPC) is gathering details of its members’ exposure to various bankrupt buyers, exporters told FE that a few thousand crores may be at risk, with potential to hurt their already-depleting cash flow further.
“Claims are yet to be filed by the exporters but we have got information that the buyers (JC Penny and Laura Ashley) have gone insolvent,” M Senthilnathan, chairman and managing director of ECGC, told exporters in a webinar organised by the AEPC.
Textile player GHCL’s managing director RS Jalan recently said the closure of as many as 150 retail units in the US has dealt a blow to Indian exporters.
Where the American buyers, such as JC Penney, have filed for Chapter 11 bankruptcy protection, creditors – including Indian exporters – will get a chance to file their claims there. But the recovery may not be impressive, given that suppliers are typically unsecured lenders and secured creditors will have precedence over them, Gautam Nair, managing director at Matrix Clothing, one of the country’s largest garment exporters, explained. Also, the whole process of filing claims will increase exporters’ costs.
The US and Europe (including the UK), which have borne the maximum brunt of the pandemic, together make up for over 60% of India’s garment exports. As such, India’s apparel exports, which had recorded a decline in six of the first 11 months last fiscal, contracted by 35% year-on-year in March and a record 91% in April, thanks to a nation-wide lockdown and a demand slump in key markets.
Assuring of all possible help, the ECGC chief has said the agency will clear all pending claims of the exporters in the next four months. “We are working under pandemic-related restrictions. But we are trying our best and we plan to clear all pending claims in four months’ time,” Senthilnathan said in the webinar.
Replying to a query by AEPC chairman A Sakthivel on claims, Senthilnathan said the exporters should share their documents and correspondences with their international buyers in one go for quick processing.