As the debt level jumps more than four times in just over eight years, the sugar industry has approached the Prime Minister’s Office and the finance ministry to relax norms for restructuring its loans under the scheme for sustainable structuring of stressed assets (S4A).
The industry has also sought the continuation of a 10% interest subsidy on a loan package worth around R4,000 crore provided by the government last year for another three years, according to Indian Sugar Mills Association (ISMA) president T Sarita Reddy.
High cane rates fixed by states in times of a global commodity price crash and plentiful supplies caused the sugar industry to bleed for more than three years, leading to a spike in debt levels to R50,000 crore now from roughly R11,000 crore in March 2008.
A late recovery in sugar prices (which had hit a six-year low in 2014-15, falling below even the cane costs) in the last marketing year through September 2016 has failed to offset massive losses incurred by mills in earlier years.
The annual turnover of the industry is less than R1 lakh crore.
In a meeting with finance minister Arun Jaitley on December 27, ISMA president Reddy and vice-president Gaurav Goel — while apprising him of the crisis in the sector — requested that the threshold limit under the S4A scheme of debt restructuring be lowered from R500 crore to R100 crore; the rationale being the smaller size of sugar mills.
Both Reddy and Goel also asked for a re-schedulement of the repayment of loans provided by the government for clearing cane arrears.
This meeting was followed up with further submissions by Reddy and ISMA director general Abinash Verma before the PMO, the food ministry and the department of financial services.
The loan restructuring has been urgently necessitated also because the due date for servicing the debts for the two loan packages provided by the government since 2013-14 (totalling around R10,000 crore) have already started for many mills from the current marketing year.
Already a hike in the cane price by Uttar Pradesh, Punjab, Haryana and Uttarakhand, and low capacity utilisation in Maharashtra, Karnataka and Telangana due to less availability of sugarcane because of drought in the last two years and low sugar recovery reported in states like Tamil Nadu and Andhra Pradesh, have raised the average cost of production of sugar by around R2,000 per tonne in the current sugar season that started on October 1 from a year before.
Under S4A, the Reserve Bank has allowed banks to split funded liabilities of a stressed company into sustainable and unsustainable debt.
The sustainable loan would be left alone to perform or be restructured if required, while the unsustainable debt would be converted into equity or equity-like, long-dated securities and redeemed at a later date.