Financial Daily from THE HINDU group of publications
Friday, Apr 18, 2003
Agri-Biz & Commodities
Seafood sector to seek capital infusion Plans SPV to raise Rs 700 cr from open market, FIs
KOCHI, April 17
THE seafood industry has mooted the setting up of a reconstruction and development fund to re-capitalise the industry.
The new scheme envisages setting up of a special purpose vehicle (SPV) to raise around Rs 700 crore via the open market or via banks/FIs for credit to the MPEDA fund for the purpose of financial reconstruction and development of units engaged in seafood exports.
Mr Elias Sait, President, Seafood Exporters Association of India (SEAI), told Business Line that the modalities such as the SPV are being worked out after which a report would be submitted to MPEDA and to the Ministry of Commerce.
"We would like the Ministry to set up a special task force with the participation of the Ministry of Finance to appraise our self-financing restructuring proposal and make it a reality in the quickest possible time," he said.
IIM, Calcutta was earlier appointed to do a viability study on the equity erosion in the industry. The study had recommended creating a fund for infusion of net worth into industry.
A series of adverse external factors over the past five years has seriously eroded the net worth of most seafood units.
It began with the Surat plague, which resulted in some of the major buyers cancelling orders and switching to other sources.
This was followed by difficulties in export to the US due to the TED law requirements.
Then came the white spot disease decimating shrimp culture production, followed by the Supreme Court ban on aqua farms within the Coastal Regulation Zone (CRZ).
The next calamity was the EU ban on Indian seafood exports with the issue of antibiotic residues dogging its heels.
And just when things seemed to be getting under control, there is now danger of the US imposing an anti-dumping suit on shrimp imports.
"These external factors have financially crippled quite a few units. As a result, banks and FIs still consider us as high risk," Mr A.J. Tharakan, Vice-Chairman, MPEDA and President of SEAI, Kerala region, said.
"These factors also resulted in bank credit to the seafood sector becoming NPAs. To make matters worse, most units were compelled to make large capital investments in plant modernisation to meet the EU requirements."
He added: "Since banks were unwilling to extend long-term finance, most units had no option but to divert working capital towards plant upgradation. Our export figures may appear satisfactory but the industry today is operating on a financially unsound basis."
According to Mr Tharakan, the proposal for restructuring is on a self-financing basis.
"The industry today is in imperative need of urgent financial restructuring. The proposed fund is not a grant but a loan which will be repaid along with interest by the industry as a whole."
According to him, repayment of the loan with interest will be ensured by MPEDA by imposition of an additional cess of two per cent (apart from the existing one per cent) on all future seafood exports for a period of five years or till such time the entire loan amount is paid in full.
It is perceived that almost 90 per cent of the units could become viable by infusion of such a fund.
"Of course, the fund would be available to individual units through their respective banks only after they approve of the viability and reconstruction plan of individual units under their financing," Mr Sait said.
The fund allocation can be arrived at after calculating the 10-year performance of exports, with the exporter being allowed to choose the best three consecutive years.
Thereafter, the performance is averaged out and of the average, anywhere between 10 per cent and 11 per cent would be the entitlement from the fund.
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