Bankers are refusing to open new letters of credit (L/Cs) for one of India's largest petrochemical companies.

Chennai-based Southern Petrochemicals Industries Corporation (SPIC) is currently in dispute with some of the banks that have historically provided it with working capital and is struggling to recommence full operations after its annual maintenance shut down.

Outstanding loans

The company has said in a filing with the National Stock Exchange that, "as two of the company's working capital lending banks have raised claims before the Debt Recovery Tribunal (DRT), which the company is contesting, opening of L/Cs by banks is pending."

Local media reports that two of the company's working capital lenders, the Tamilnad Mercantile Bank and the Punjab and Sind Bank, had approached the DRT to recover their outstanding loans to the company.

Claims contest

SPIC has reportedly contested the banks' claims and sought a DRT directive ordering the financial institutions not to commence recovery procedures. The DRT has been hearing the case and has not yet passed any order.

The DRT is an arbitration mechanism established by Indian government to help financial institutions recover bad debts quickly.

Dire straits

SPIC is thought to owe banks and financial institutions in the region of US$10 million in secured loans and another US1.2 million in unsecured loans, and appears to be in dire financial straits.

Earlier this year feedstock suppliers declined to supply SPIC with naphtha and phosphoric acid on credit, forcing the company to cut back production.

SPIC shut down its ammonia and urea plants for annual maintenance on 26 March this year.

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