InvestorQ : How is the government planning to support sugar mills? Is it planning to offer loan write-offs?
Moii Chavate made post

How is the government planning to support sugar mills? Is it planning to offer loan write-offs?

Tisha Malhotra answered.
1 year ago

There are 2 things I want to clarify here. Firstly, this is a deferral program for sugar manufacturers and not a loan waiver or a loan write-off program. Secondly, this is not for all the loans taken by the sugar companies but only for sugar loans availed by the sugar mills out of the Sugar Development Fund (SDF) of 1982. This will include a moratorium and a longer period to repay the loan. There is not going to be any waiver.

The government has issued detailed guidelines to help the sugar mills by restructuring the loans taken from the Sugar Development Fund (SDF). In case of defaulting sugar factories, that fulfil certain basic criteria, the borrowers will get a moratorium of 2 years and then a repayment period of 5 years to fully pay down such loans taken from SDF. The total amount outstanding is quite small at Rs.3,068 crore.

This restructuring facility will be available to weak but economically viable sugar units, that meet 3 basic criteria. The sugar factor must be continuously incurring cash losses for last 3 years in succession. Its net worth must be negative but the factory is not yet closed down as of today. Lastly, where the factory has not stopped crushing cane for more than 2 sugar seasons excluding current season. Sugar season extends from October to September.

The facility will be made available to all types of borrowers including a public limited company, private limited company or a cooperative society. In fact, out of the Rs.3,068 crore overdue, Rs.1,249 crore pertains to the original principal amount, Rs.1,071 crore is payable towards the interest amount and Rs.748 crore is towards additional interest due to default. The package includes waiver of this additional interest portion.

However, it must be remembered that for the 2 year moratorium and the subsequent five year period of repayment, the interest will be charged on the outstanding amount. This will be based on the bank rate that is prevailing on the date of the approval of the restructuring of the loan. The purpose of this restructuring package is to ensure that stressed, yet viable, factories can take advantage of the economic scenario of buoyant sugar prices.