India creditors worried as US and European companies file bankruptcies

indica News Bureau-

As American and European retailers are filing for bankruptcies due to the coronavirus pandemic, the Indian creditors who have unsecured outstanding dues with the companies are feeling the pressure. It is estimated that the Indian creditors have outstanding dues in excess of $50 million.

Even leading retailers like J C Penney, J Crew, Neiman Marcus and Stage Stores have filed for Chapter 11 bankruptcy protection in the US in the last two weeks, while True Religion filed for the same last month. In Europe, Debenhams, Esprit, Oasis and Warehouse have gone into administration, according to a report on Economic Times. Chapter 11 bankruptcy protection in the US allows businesses to undergo restructuring under the watch of a trustee and try to bring the company out of crisis.

These companies import about $150-200 million worth of apparels and home furnishing products from India annually, said people in the know. As per industry estimates, the outstanding dues from these companies to Indian suppliers were well over $50 million since the January to March period is the busiest in terms of apparel exports due to high demand for summer collections.

These companies also outsource their back-end information technology operations to Indian firms.

“Biggest problem many of us would be facing is the bankruptcy of the over-leveraged corporations across Europe and US,” said Narendra Goenka, managing director of Texport Industries and vice-chairman of Apparel Export Promotion Council (AEPC). “Every day we wake up and see in the international media so-and-so has filed for bankruptcy.”

According to the US bankruptcy court records, the top 30 creditors of True Religion include five Indian firms whom it owes $4.3 million (Rs 32.5 crore) while J Crews owes over $21 million (Rs 159 crore) to three Indian apparel exporters, namely Fashion Accessories, RK Industries and Gaurav International, according to the list of the company’s 30 largest unsecured creditors given in its bankruptcy court filing.
JC Penney owes $6.7 million (Rs 50 crore) to Tata Consultancy Services (TCS) and $3.5 million (Rs 26.5 crore) to Delhi-based Elkay Overseas. Neiman Marcus owes TCS over $1.6 million (Rs 12 crore).

ET independently spoken to two creditors to JC Penney who claim to have outstanding dues of about $4 million but were not mentioned individually in the bankruptcy filing, and reports that there could be many more such Indian creditors to these companies whom they owe smaller sums that were not mentioned in the bankruptcy filing.

A True Religion supplier told ET on the condition of anonymity that he had flown to Los Angeles just before the lockdown to negotiate payment terms with the denim seller but the day it was supposed to initiate the payments, the company declared bankruptcy.

ET emailed queries to JC Penney, J Crew, Debenhams, Esprit and Stage Stores that remained unanswered as of press time on Monday while Neiman Marcus and TCS declined to comment. Fashion Accessories, RK Industries, Elkay Overseas and Gaurav International couldn’t be reached for comment.

Retailers across the world have been stressed due to lockdowns to contain the Covid-19 pandemic. Indian exporters say that many more could be in the pipeline to come up for bankruptcy. One person, who has over $1 million exposure to Esprit, said that indications of a company heading towards financial stress include them making unreasonable negotiations like asking for discounts of more than 40-50%.
About half of the retailers have tried to re-negotiate payment terms in the wake of Covid-19, several people said.

“There would be big losses because of bankruptcies. And those not bankrupt have extended the payment from 30 days to 90 and 120 days,” Goenka said. Many were even heard of unilaterally extending payment terms to as long as 180 days or even indefinitely.

According to AEPC data, India annually exports about $16 billion worth of apparels, mostly to the US and Europe.

Bankruptcies of retailers in these countries also mean fewer orders for Indian exporters. Amongst them, the companies mentioned have announced the closure of several hundreds of stores.

People familiar with the bankruptcy process in the US said that companies with outstanding dues could expect a fraction of their payments.

India does not have provisions on cross-border insolvency. So, the operational creditors may have to file their claim and be part of the insolvency proceedings in the country of filing, said Saurav Kumar, partner at law firm IndusLaw.

“One may also have to examine if the customer has an Indian subsidiary to make such companies a party,” Kumar said to ET.