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Tuesday, August 28, 2012

Punjab National Bank forwards Ind-Swift case for debt recast

Ind-Swift Ltd, a Chandigarh-based mid-sized pharmaceutical company, has been referred to the corporate debt restructuring (CDR) cell by Punjab National Bank to sort out loans aggregating about Rs 900 crore.

Nine banks, including PNB (Rs 405 crore), State Bank of Patiala (Rs 131 crore), State Bank of India (Rs 80 crore), Bank of India (Rs 64 crore) and Canara Bank (Rs 57 crore), and a financial institution collective have an exposure of Rs 843 crore to the company.

The abovementioned banks and the financial institution (Export-Import Bank of India) are CDR members. Non-CDR members – Catholic Syrian Bank, IFCI and Tata Capital – collectively have an exposure of about Rs 57 crore to the pharma company, , said an official with one of the banks involved in the debt resolution exercise.

According to Ind-Swift, it has made a reference to the CDR cell through PNB in view of shrinking operating margins, high level of finished stocks, low liquidity, and escalating debt costs.

The CDR mechanism came into existence in 2001 to restructure debts of viable corporate entities affected by internal and external factors. A cell floated by banks and financial institutions screens and implements all corporate loan restructuring proposals.

Competitiveness of the company has been impacted due to mushroom growth of small units.

The reasons why the company is facing rough weather are manifold. Over the years, tax exemptions and subsidies given by the State governments of Himachal Pradesh, Uttarakhand and Jammu & Kashmir led to more than 400 small and mid-sized pharma units manufacturing generic drugs being set up.

These pharma units were initially set up as contract manufacturers for bigger pharma companies. But once orders started drying up they ventured on their own to manufacture and market-generic drugs (which are copies of branded drugs whose patent has expired). They began selling products by cutting their profit margin, which in turn put stress on Ind-Swift’s margins.

In the last two years, Ind-Swift could not pass on the increase in raw material costs to the overseas customers due to the fixed nature of contracts. Further, substantial amount of cash accruals of the company had to be utilised for servicing debt obligations.

Due to fire at its Parwanoo unit (in Himachal Pradesh) in October 2009, Ind-Swift made a claim of Rs 8.10 crore on an insurance company. However, the insurance company settled only Rs 1.35 crore of the claim. This added to the liquidity crunch.

Changing tack

The company, which is listed on the BSE as well as the NSE, has shifted its marketing operations from Chandigarh to Mumbai and doubled the marketing force from 900 to 1800. But this move added to the administrative cost.

Ind-Swift has taken steps to strengthen its operational management by appointing industry veterans to head marketing, operations and technical marketing functions.

The pharma company intends reducing its dependence on low yielding generic products and trading activities and step up its focus on ethical prescription (drugs which is available only with written instructions from a doctor) business.

According to the company, the positive outcome of the steps already taken to turn the corner will take two years to fructify.


According to the the terms of the debt recast, term loans aggregating Rs 163 crore and corporate loans aggregating Rs 102 crore will be repaid over eight years at a floating interest rate of 12 per cent. Interest due on terms loans will be converted into funded interest term loans at 10.50 per cent interest. Letters of credit thatdevolved up to June 30 will be converted into working capital loan.


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