Sugar mills start defaulting on bank loans amidst sugar glut

The Rs7,000-crore sugar loan largesse of the UPA government has started recoiling on the banks with at least one sugar mill forced to default, with the possibility of others following, amidst a lurking four-year-old supply glut of the sweetener in the country.

One of the country's largest mills, Mawana Sugars, has defaulted on Rs250 crore loans from a group of lenders, after the company posted a Rs24.52 crore loss in the financial first quarter that ended in June.

"We are losing Rs5-6 a kg of sugar we produce. It is not viable to operate mills with the current pricing of sugar and cane," said Rajendra Khanna, a director at the company.

"We have defaulted on term loan due to the disparity in cane and sugar prices," Reuters quoted Khanna as saying.

Sugar mills in India are in an unenviable position with prices of inputs (sugarcane) dictated by the government on political considerations and output (sugar) prices determined by the market forces.

A squeeze on margins of sugar mills internationally, caused by depressed prices after years of global over-supply, are hastening closures and consolidation in the sector around the world, say reports.

This is worst in Uttar Pradesh, the main cane-growing state, where millers have been told to pay farmers Rs280 per quintal (100 kg) of cane, against the Rs210 'fair and remunerative price' recommended by the central government.

The lenders, state-run banks, have already stopped providing fresh working capital to mills and have asked Uttar Pradesh's government to change its cane-pricing formula.

While the UP government is yet to come out with a cane price for the 2014-15 marketing year that started on 1 October, most mills in the state have decided to suspend cane crushing in the new season unless the state links cane prices to sugar prices.

Sugar prices have fallen nearly 13 per cent in the last 12 months. The state-advised cane price has climbed 65 per cent in five years, while the sugar price has risen by just 1 per cent.

"Unless the state government rationalises its cane pricing formula, we will see more and more sugar mills falling into non-performing accounts," Abinash Verma, director general of national lobby group the Indian Sugar Mills Association (ISMA), said.

"Some mills don't have money to pay the salaries of employees. They will default in coming months. They don't have an option," said an industry official from Uttar Pradesh.

Major sugar producers such as Bajaj Hindusthan, Balrampur Chini Mills, Shree Renuka Sugars and Simbhaoli Sugars posted losses in the April-June quarter.