The AC Muthiah group flagship company Southern Petrochemicals Industries Corporation Ltd (Spic) has landed itself between a rock and a hard place as its working capital lenders are refusing to open fresh letters of credit (LCs) making it difficult for the company to resume production after its annual maintenance shut down.
A couple of months ago, feedstock suppliers of the company had declined to supply naphtha and phosphoric acid, two vital raw materials for manufacturing fertilisers, on credit forcing the company to cut back production.
In a filing with The National Stock Exchange (NSE), Spic said, “As two of the company’s working capital lending banks have raised claims before the Debt Recovery Tribunal, which the company is contesting, opening of letters of credit by banks is pending.
The company is taking efforts to resume production at the earliestâ€Â. Despite repeated efforts, Spic officials were not available for comment. According to the company balance sheet for 2005-06, as of September 2006, Spic owes banks and financial institutions Rs 4,101.17 crore in secured loans and another Rs 481.44 crore in unsecured loans.
Sources in the know told FE that two of its working capital lenders, the Tamilnad Mercantile Bank (TMB) and the Punjab and Sind Bank, had approached the debt recovery tribunal (DRT), Chennai to recover their outstanding loans to the company.
Spic, according to sources, has contested the claims of the banks and sought a directive from DRT to refrain them from any recovery procedure. DRT has been hearing the case and has not yet passed any order.
“It does not make sense for banks to open LCs when the claims are pending before DRT. They may reconsider the decision once the tribunal’s order is outâ€Â, sources said. IDBI and ICICI had earlier sold their outstanding loans to the Asset Reconstruction Company of India Ltd (Arcil) for an undisclosed amount.
Spic has shut down its ammonia and urea plants for annual maintenance on March 26.
