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Arvind Mills' Restructuring Plan

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Case Details:

Case Code : FINC011
Case Length : 8 Pages
Period : 1997 - 2001
Pub. Date : 2003
Teaching Note : Available
Organization : Arvind Mills
Industry : Financial Services
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Into the Red

By the late 1990s, Arvind Mills was in deep financial trouble (Refer Table III) because of its increasing debt and interest burden.

Its total long-term debt was estimated at Rs 27 billion, out of which the total overseas debt was Rs 9.29 billion and debt to Indian institutional lenders was Rs 17.71 billion.

However, much of the debt to Indian financial institutions was secured was not known. Arvind Mills had defaulted on interest payments on every loan.

ICICI was the largest Indian institutional lender, with a loan of over Rs 5 billion to Arvind Mills. (Refer Table IV for a list of lenders to whom Arvind Mills was indebted). In 2000, the company reported a net loss of Rs 3.16 billion against a profit of Rs .14 billion in 1999...

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Into the Black?

In February 2001, Arvind Mills announced a debt restructuring plan for its long term debt (Refer Box). While the company set itself a minimum debt buyback target of Rs 5.5 billion, the management was hopeful of a larger amount, possibly Rs 7.5 billion.

In mid-2001, Arvind Mills got the approval of a majority of the lenders for its debt restructuring scheme. Forty-three out of fifty-four lenders approved the plan. As part of the restructuring, lenders offered over Rs 7.5 billion under the company's various debt buyback schemes.

Some of the banks agreed to the buyback at a 55% discount on the principal amount, while some agreed to a five year rollover for which they would be entitled to interest plus the principal. Some banks also agreed to a ten year rollover for which they would be paid a higher rate of interest plus principal. The debt revamp was expected to reduce Arvind Mills' interest burden by 50%...


Exhibit I: Shareholding Pattern (%)

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