It is expected that restructuring of debt under “Corporate Debt Restructuring (CDR) programme of RBI will take about 60 days to complete.

“We are looking at a loan extension from banks and hope to achieve a conclusion soon,” said Ambeek Khemka, Group Vice-President, Vishal Retail.

Under restructuring package under consideration of banks, the lenders may allow Vishal Retail to enjoy a maritorium period of four years on repayment of loans as well as payment of interest charges. The interest liability on debt is currently placed at around Rs 100 crore per annum. This will give necessary breathing space for the retailer to reorganise its business and come out of the cash crunch situation.

The retailer on its part of the deal will be required to close down a few of the 180 stores that are under performing. The retailer will also be required to infuse equity funds by way of issue of new equity. This will result in dilution of equity stake for promoters. The company was founded and promoted by R C Agrawal, its present Chairman.

The deal has been inked with lending banks like with SBI, HDFC and HSBC to whom the retailer owes major part of debt of around Rs 730 crore.

“The agreement with our lenders has been signed and the corporate debt restructuring (CDR) process will begin within the first half of November,” said Ambeek Khemka Group President Vishal retail to PTI. The company is confident of completing the process of CDR in 100 days, according to Khemka. Scoffing the rumour of banks insisting on the condition of Company’s founder and Chairman Ram Chander Agarwal resigning from the Board, Khemka said, “There is no such condition. The CDR is an open-ended business and any decision will be made only after the process is completed.”

It may be interesting recall that another retail wonder “Subhiksha” which also grew at breakneck speed during heydays of retail was unable to complete the process of CDR initiated by the banks. Of course, while the two companies grew at a much faster pace than most others, there situations are not quite comparable.

The retailer, which operates around 170 mega (mini- hyper market format) stores across the country has been battling hard for cash as most of the funds raised by the company through hugely successful IPO and debt from banks has been invested in capital intensive expansion of retail chain which has failed to generate adequate cash flows to service the same.

Although, the retailer in the past few months had initiated several measures to restructure the operations, it was unable to stem the rot that had arisen due to the double whammy of falling footfalls and shrinking customer basket faced by the company in 2008-09. Interestingly, Vishal has held last year’s global economic slowdown for most of its woes.

Subhiksha’s used its time tested brand mantra of “low cost” to lure customers to its shops. Many customers, who lined up the shops to buy crackers, were attracted by promotional lines like “Largest Cracker Shop” and “Lowest Price, All Varieties.” Triad Trading Services– a group shell company– was roped in as a franchisee for the purpose.

This year only four outlets could be roped in to sell crackers, though last year their number was as high as 30. As against last year’s sales of Rs 10 crore in 10 days, this year the retailer is believed to have sold crackers of Rs 3 crore in value.

Although, this would have rekindled hopes of reviving beleaguered company’s operations in the near future, probability of this happening is very slim as Subhiksha is facing several petitions seeking winding-up of the company’s operations. Madras High Court (MHC) has already posted dates for hearing of these petitions.

All retailers, big and small, though fearful of the scourge, refrain from making reference to impact of this menace that is affecting their bottom-lines.

According to an ET report, large retailers like the Future Group, Spencer’s Retail, Reliance Retail and Aditya Birla Retail, who are already working on very thin margins, however, have now decided to join hands with a view to combat the growing menace that is directly killing their profits.

According to the second annual Global Retail Theft Barometer 2008 Survey, which covered 920 large retailers across 36 countries, India had the highest shrinkage rate of 3.10% during the year, an increase of 6.9% over last year.

The group of large retailer, though fiercely competing with each other for garnering higher market share, will now collaborate and create a blacklist of employees who are found guilty of theft. Apart from theft, the list of employees to be shared among the group members will also include the names of those employees who quit their companies without giving prior notice. Employees will also be identified for indulging in unethical practices and rudely with behaving with customers.

The blacklisted employees will find it extremely difficult to get employment with another retailer once such lists are prepared and become available to members of the group.

In this context, it may be intersting to know that, IT industry, which faces major problem of data theft and misrepresentation by employees, has created a blacklist of employees who indulge in data theft and other unscrupulous practices. NASSCOM, the representative association of IT and ITeS sector has also created a ‘National Skills Registry’ with a view to verify the background and antecedents of IT professionals. These lists are regularly updated by the industry bodies for benefit of their members.

Retailers Association of India (RAI), the representative association of big and small organised retailers, according to the report, is also planning to create a list on similar lines. While, identifying delinquent employees, it hopes to initiate the process of verification of potential employees.

Delhi-based, R. C. Agarwal-led, value retailer, has for quite sometimes been finding it hard to meet the challenges of falling footfalls, which on the one hand has resulted in sharply declining sales and on the other in increasing losses. The company, as such, has been finding it hard to timely service its growing financial obligations and even delay payment to its vendors.

The retailer, believed to be currently carrying a debt burden of around Rs 7.3 billion (730 crore), has reported a sharp decline in sales from Rs 3765 million in Q1 (2009) to Rs 2653.7 million in Q1 (2010). The retail chain as a consequence has incurred a net loss of Rs 906 million during Q1 2010 (ending June 2009) against the net loss of Rs 140 million incurred during Q1 2009 (ending June 2008).

Chennai-based discount retailer “Subhiksha Trading,” which had also commenced CDR process under somewhat similar circumstances was, however, unable to take the process to its logical conclusion.

Vishal Retail, which earlier had defaulted on payment of a loan installment, has been trying hard for almost a year with its lenders to reschedule loan repayments and reduce interest rates.

On operational side, to overcome financial stress, the company has initiated several steps that among others include closure of unprofitable stores, closing down regional distribution centres, reducing staff strength, and even selling most of garment manufacturing units.

Vishal may, perhaps, be able to stem the rot if it can succeed in convincing its dozen or so lenders to restructure its debt and reduce interest rates. It should, however, be noted that RBI’s CDR programme is basically meant to help loss making manufacturing companies and not the trading companies like Subhiksha or Vishal.

“Cash & Carry Trading (P) Ltd” –another company founded by R Subramanian– has filed an appeal before the wider bench of Madras High Court to allow it to arrive at an agreement with the creditors of Subhiksha Trading as the first petition seeking the same was earlier set aside by a single judge bench of the High Court, when his lordship allowed admission of the creditors’ petitions seeking dissolution of Subhiksha Trading.   The appeal is expected to come up for hearing before the Court in the next month (October, 2009).

Subhiksha owes around Rs 900 crore to a cross section of creditors comprising financiers, vendors, service providers, property owners, and employees, among others. A major part of this outstanding amount (around Rs 750 crore), has been lent by a consortium of 13 banks led by ICICI Bank Limited. Incidentally, ICICI Bank, through its venture capital arm I-Venture, also owns around 23 per cent of equity stake in Subhiksha Trading.

The lending banks (barring Kotak Mahindra Bank) had earlier worked out a financial package to revive operations of the beleaguered retailer. The financial assistance of Rs 300 crore was sought by the retailer under Corporate Debt Restructuring (CDR) scheme of the RBI. However, despite working out broad contours of the agreement, the revival package could not be inked as the retailer, among others, failed to provide timely information on the company’s financial position.

Kotak Mahindra did not join the revival effort alongwith other lenders in the consortium as it had filed a petition for dissolution of the company. The pending petitions of Kotak and other creditors for dissolution of the company are listed for hearing in the High Court on the 5th October, 2009.

Apart from lenders and creditors, Zash Investments– an Azim Premji owned PE firm– owning 10 per cent of the equity in Subhiksha Trading is also opposed to the compromise mooted by Cash & Carry.

Both Cash & Carry and Subhiksha Trading have been founded, promoted, and managed by R Subramanian, his family, and associates.

In another blow of sorts to the retailer, the court has also allowed Kotak Mahindra Bank to seek objections, if any, from Subhiksha’s stakeholders for winding up of its operations. The bank, which was a part of consortium of 13 lending banks led by ICICI Bank, has been allowed to invite objections of the stakeholders by publishing advertisements in national dailies in English and Tamil for this purpose.

The latest orders of Justice P Jyothimani of the Madras High Court are seen as beginning of the end of a retailer, which in the heydays of retail boom just a few months ago, was presented as a role model of growth in the retail sector.

Subhiksha was, however, forced to suspend operations of its retail chain in January, 2009, as it could not arrange cash for operations of 1,600-odd stores most of which sold food & grocery across the country at discounted rates.

Subhiksha, according to financial position submitted to the court for 31st March, 2008, was owing Rs 928 crore against liabilities and provisions, while carrying a cash balance of Rs 18 crore.

As per Scheme of Arrangement submitted by Cash & Carry, the retailer wanted to settle the secured outstandings as in October 2008 at 50 per cent of the principal amount and payment of balance over a period of 10 years.

Apart from Kotak Mahindra, the retailer is also facing several court cases for recovery of dues from erstwhile creditors including vendors, service providers, employees, and property owners, among others.

Undetered by adverse decisions of the court, R Subramanian, promoter, founder, and managing director of Subhiksha Trading is confident of reviving the operations of Subhiksha. In a statement, he says, “The company is confident that the order admitting the winding up petitions for hearing by the (Honorable) Court has no bearing whatsoever on its revival plans.”

Subramanian is likely to appeal against the court’s orders, once copies of the judgment are received by the company.

The MOU with the state government was an important part of ‘farm to fork’ policy initiated by Mukesh Ambani, chairman of Reliance group.

The decision to scrap the agreement that provided for setting up of 52 rural hubs and 250 sub-hubs across 18 districts of the state was taken as Reliance, according to the state government, failed to comply with terms and conditions of the MOU.

While meeting the objective of retailing horticulture products to consumers at reasonable prices on one hand, implementation of the agreement would have paved the way for creation of agri-infrastructure on the other hand. This would have helped in boosting production of fruits, vegetables and other fresh products in the state.

According to terms of the agreement, Reliance was committed to set up supply chain (infrastructure, cold storage, logistics) at an investment outlay of Rs 3,000 crore, while the state government had agreed to provide 1,000 crore of land to the company at concessional rates. Reliance had also agreed to enter into agreements with local farmers for agri and retail-based projects.

Apart from procuring milk and grain, Reliance was planning to procure over 200,000 tonnes of horticultural products from an area of over 300,000 acres under the project.

The statement of ICICI Bank assumes significance as it has come subsequent to filing of a ’scheme of arrangements’ under Section 391 of the Companies Act. Subhiksha wants the consortium of all its 13 lending banks led by the ICICI Bank to take a 50% hit on the amounts the retailer owes to its lenders. Subhiksha, according to the scheme of arrangements, is said to be agreeable to put in Rs 250 crore in operations of the company.

If the Court accedes to the Bank’s lates submission, it may become extremely difficult to revamp the working of the retail chain. The lending banks have already provided for most of their dues against the company in their books.

The retailer, it may be recalled, for last over six months, has been pinning its hopes on receiving Rs 300 crore in financial assistance from the consortium of lending banks to partly revive its operations. ICICI Bank is apart from being a lead bank in the consortium of lenders is also part holder of equity (23 per cent) stake in the company through its private equity arm I-Venture.

The financially troubled retailer, it may be recalled, was forced to shut down operations of all its 1600-plus stores across the country from January, 2009. Much of the Rs 870 crore received in debt from a consortium of 13 banks is believed to have gone in funding expansion of the company during 2008.

Subhiksha Trading Services Limited, the company which owns the now defunct retail chain, was founded and promoted by R Subrahamanyam, a local banker turned retailer. Apart from banks, the retail chain is also owing large sums of money to vendors, service providers, property owners, and workers, among others.

The position in this regard became clear when employees of the company despite followup could not receive Form 16 from their employer. This has forced the employees to abstain from filing their tax returns with the tax administration.

At one point of time, 15,000 persons were under direct or indirect employment of Subhiksha. Most of these, however, working at front end on low salaries may not have been liable for payment of taxes. The company is estimated to be owing about Rs 35 crore in unpaid salaries and other dues to its employees.

The company in a mailed response, however, has denied any liabity on this account. “We have no dues in respect of TDS in any manner, in respect of any employee,” said R Subramaniam, Subhiksha’s managing director to the newspaper.

The act of deducting tax and not remitting it to the government is an offense for which the company’s management is liable be prosecuted. Those responsible for not depositing the money, without valid reasons, may have to face imprisonment of between 3 and 7 years. The company may also be penalised for failing to issue the TDS certificates to its employees.

Subhiksha, it may be recalled, was forced to close down its discount retail chain comprising 1,600-odd convenience format stores operating across various states of the country. The stores were closed over 6 months ago in January, 2009, due to severe cash crunch.

Subhiksha Trading owes around Rs 1,000 crore to various creditors including Rs 870 crore to a consortium of 13 banks led by ICICI Bank Limited. The company failed to obtain bailout assistance of Rs 300 crore from its lenders under RBI’s CDR (corporate debt restructuring) programme as dedline for sanction of the revival package lapsed aon 31st July, 2009.

The ICICI Bank, which together with other litigants including ICICI Venture, HCL Infosystems, Azim Premji-owned Zash Investment and Kotak Mahindra Bank, is opposed to the company’s proposed merger with Chennai-based Blue Green Construction and Investments Limited, is also opposed to the proposal of compromise mooted for restarting operations of the suspended retail chain. The proposal was mooted by Subhiksha’ subsidiary ‘Cash and Carry.’

ICICI Bank has told the court that the retail chain for its revival should not depend on the outcome of its application for corporate debt restructuring (CDR). The last date for proposed bailout assistance of Rs 300 crore sought by the retailer, as reported earlier, has already lapsed on the 31st July, 2009. There are unconfirmed reports, though, that lenders may seek extension of the missed date in future.

The counsel for various litigants have also sought an investigation into the affairs of the company, which was founded and promoted by its managing director R Subrahmanyam.

During the hearing of the case, ICICI Bank also informed the court that while Subhiksha owes Rs 870 crore to the banks, an amount of about Rs 107 crore is due to unsecured creditors. These unsecured creditors, among others, include vendors, service providers, property owners, and employees of the company.

Referring to an amount of Rs 250 crore under the head of ‘reserves’ in the company’s books, the lead bank told the court that “none of us know where it went.” The company has also lent amounts worth Rs 119 crore as loans and advances, however, the identity of their receipients, according to the ICICI bank counsel, is “unclear.”

Cash and Carry Wholesale, a shareholder of Subhiksha, has  filed a court petition under Section 391 of the Companies Act, that seeks to arrive at a compromise between Chennai-based cash starved retailer company and its creditors.

“We have been informed and notified that Cash and Carry Wholesale Traders Pvt Ltd, the promoter of Blue Green Construction and Investment Ltd, into which we are merging has filed a Section 391 petition before the High Court,” said R Subramanian, Subhiksha Trading Services Ltd’s promoter, founder, and managing director in statement.

A company and its creditors can meet and arrive at a consensus on any matter under the provisions of section 391 of the Indian Companies Act, provided such a meeting has been held under the orders of a competent court.

Subhiksha it may be recalled was forced to suspend operations of over 1,600 convenience stores discount chain in January, 2009, as it ran out of cash to meet obligations of its lenders that among others included banks, vendors, service providers, property owners and employees. Subhiksha is believed to be owing about Rs 800 crore to a consortium of 13 banks, including Kotak Bank (Rs 40 crore) which has petitioned the Madras High Court to wind up the operations of the cash strapped company.

To revamp its suspended operations, albeit on a small scale, Subhiksha sought assistance of Rs 300 crore from its lenders under RBI’s CDR scheme. However, despite agreeing in principle to arrange induction of Rs 250 crore, the retailer failed to obtain approval of its lenders to its proposal within the stipulated time period of six months (up to 31st July, 2009).

Subhiksha, according to the statement, however, is still hopeful of resuming its activities in the next 3 to 4 months as its management is working with lenders on restructuring the troubled firm.

“The realignment is not happening right now. There are some legal issues. We are waiting for feedback from our legal team on this,” said Kishore Biyani, founder and CEO, Future Group, while speaking to reporters at Mumbai on 4th August, 2009.

Future group, it may be recalled in April this year, had unveiled a plan that will realign businesses of PRIL into a multi-tiered structure under the new name of Future Merchandise & Consumer Group (FMCG Ltd). PRIL wanted to attract a large amount of foreign capital in mult-brand retail via a web of subsidiary companies as infusion of foreign capital (FDI) for multi-brand retail is currently banned in India. The group is constantly looking for resources to fructify its expansion plans.

Although unsure of how long it would take to achieve the realignment, Future group is sure of its intention to implement the same as soon as feasible.

PRIL, the retail arm of Kishore Biyani-led Future group, opertes several multi format retail chains like Big Bazaar, Pantaloons, Central, Home Town, e-Zone, Ethnicity, among others, across value, lifestyle, and home retail segments.

The last date for disposal of the proposal under the rules framed for CDR will come to end in the next three days on the 31st July, 2009.

It now appears from media reports that it may afterall be not possible for the banks to complete the sanction process before the due date.

Accordingly, the banks have asked the concerned authorities to extend the time limit by additional two months (up to the end of September, 2009).

According to some bank officials quoted in the report, “it now depends on the CDR (office).” It may be intersting to note here that if the extension is agreed upon by the authorities concerned, it will be first such extension under the CDR programme.

The case of Subhiksha for consideration under CDR package is also unique as the process is basicall meant for reviving industrial companies, while Subhiksha, which operated a retail chain of over 1,600 discount stores mainly under value segment is a trading company.

While, bankers like ICICI Bank (lead bank) together with HDFC, Yes, Stanchart, and HSBC Banks, among others, are processing the revival package that seeks to obtain Rs 300 crore for revamping operations of the chain whose all the stores were closed around January, this year, Kotak Mahindra Bank, another erstwhile consortium member, has refused to be part of the process.

Kotak Bank incidentally has filed a petition in the Madras High Court seeking winding up of the beleaguered company. Kotak has to recover around Rs 40 crore from the cash strapped retailer. Apart from Kotak, Subhiksha is also fighting many legal battles against cases for recovery of dues filed by vendors, service providers, property owners, and employees, among others.

R Subrahamanyam, company’s founder and managing director, has refused to comment on the delay. He together with his friends relatives and associates owns 59 per cent stake in the company’s equity, while I-Ventur and Zash Investment (PE arms respectively of ICICI and Azim Premji) own 23 and 10 per cent equty stakes of the company.

Subhiksha, which operated a discount chain of 1,600-odd mainly food and grocery stores across the country, until January this year, it may be recalled, had approached its financial lenders to whom the chain owes more than Rs 500 crore to work out a package under RBI’s CDR (Corporate Debt Restructuring) programme.

One of the reasons for delay in finalising the package is said to be the non-availibility of financial accounts of the company for the 15-months perid ended 30th June, 2009. The lending banks had appointed the global accountancy firm E&Y to help prepare the accounts.

The consortium of lending banks led by ICICI Bank, according to sources, are willing to offer maritorium on payments and restructuring of capital subject to appointment of an advisory board, a chief financial officer (CFO), corporate governance committee. While, the advisory board is expected to keep tab on operations, the CFO is expected to manage the finances. The governance committee is likely to exercise superintendence and control over company’s policies and operations.

R Subrahmanyam, founder and managing director of the company, is said to be the favourite of the lenders to manage the company’s operations in his present position, on day to day basis. Continuation of Subrahmanyam, who founded and run the company since its inception, is favoured because he is the best person who knows problems and potential of the company.

R Subramanian is believed to have committed to arrange for the additional funds required for revamping the operationds of the company. To begin with the company may restart the operations with 500-odd stores.

Meanwhile, Minister of Company Affairs informed the Loksabha yesterday that the company had not paid salary for three months and closed all units without any communication. The statement of the minister was based on the complaint received from Anil Kumar- an ex employee of the company. Subhiksha is also batteling several legal petition in the Madras High Court challenging its proposed merger with a local company and seeking winding up of the company as it has failed to make outstanding payments against supplies, services, and salaries.

I_ Venture (private investment arm of ICICI) and Azim Premji’s Zash Investment are minority equity holder holding 23 and 10 per cent of the equity in the company. Promoters led by R Subrahmanyam own around 59 per cent of the stake in the company.