Indian sugar mills likely to default due to capped prices
Indian sugar mill owners are likely to default on around $1.65bn of debt, following caps on prices, the lifting of excise duty exemptions and non-payment of subsidies, according to T Sarita Reddy, vice-president of the Indian Sugar Mills Association. Sugar industry representatives have warned that debt restructuring will be required as government loans become non-performing assets. Reddy said "the clearing of loans would be extremely difficult".
Several unfavourable moves from the government in terms of capping sugar prices, removal of excise duty exemptions and non-payment of production subsidies etc are set to result in Indian sugar mills staring at default Rs 11,000 crore of debt on the repayment schedule for these loans, which were provided by the government two years back in the form of excise duty term loans and soft loans, has started since May this year. Sugar industry representatives and experts foresee lenders declaring these loans turning into non-performing assets, warranting debt restructuring initiatives. In the financial year 2014-15, sugarcane prices crashed due to surplus production since 2013 and huge carry forward stocks hurting millers which led the government to provide soft loans worth Rs 6,000 crore and Sarfesi loan of Rs 5,000 crore with interest subvention of 12%.According to T Sarita Reddy, vice-president, Indian Sugar Mills Association and managing director of Hyderabad-based Gayatri Sugars, “The millers are likely to default on payment of loans, turning (those) into NPAs and might also go for restructuring due to the unfavourable steps taken by the government like putting stock limits on millers, capping of retail prices, increased cess, non-payment of export incentives etc that are stressing our earnings and payment to farmers and clearing of loans would be extremely difficult.“ Millers have been continuously seeing losses as cost of pro Rs 3,275 per duction for 2013-14 was quintal, for 2014-15 and 2015-16, it was Rs 3,300 while the average exmill price was Rs 2,500 and Rs 2,900, Rs 3,100, respectively.Meanwhile, the government increased cess by Rs 100 per quintal to Rs 124 in February this year to create a price stabilisation fund as per re commendations by the Commission of Agricultural Costs and Prices (CACP). The fund was instituted to promote exports by way of production subsidy of Rs 4.50 per quintal and to pay the difference between FRP and realisable sugar price. However, "despite the increased cess being collected that would have accumulated nearly Rs 2,500 crore till now, it is not being put to use and millers are feeling the pinch of paying farmers out of losses. Also, Rs 500 crore of the corpus is yet to be paid to millers who had exported sugar," said Sarita.The millers are also anticipating losses next year as the fair and remunerative prices (FRP) is likely Rs 250-255 per quintal next to go up to year from Rs 230 per quintal now.