U.S. Tariffs Couldn't Come at a Worse Time for India's Largest Paper Maker

  • Has 25 billion rupees of maturities over three years: Fitch
  • Losses of Indian paper makers have jumped more than five times

Creditors of India’s largest paper maker Ballarpur Industries Ltd. may face costly unintended consequences from punitive U.S. duties on some of the company’s Asian competitors.

Ballarpur invested heavily in recent years to modernize its production facilities, and now may not be able to avoid defaulting on its debts, Fitch Ratings Ltd. said Monday. The imposition by the U.S. of duties on Chinese and Indonesian paper in mid-2015 couldn’t have come at worse time for Ballarpur, as it prompted companies from those nations to seek more sales in India. India itself is reducing paper import tariffs.

The result is a toxic mix for Ballarpur, founded in 1945, and now in an industry under siege from overcapacity and increased digitization, as people turn to e-readers instead of books and newspapers. It is also a reminder of the far-reaching consequences that protectionist measures can have at a time when President Donald Trump is just putting shape to his America First policies.

Fitch said Monday that a default on the Ballarpur’s obligations “appears inevitable” and it lowered the company’s long-term issuer rating to C, one level above default grades. The group’s 9.64 percent perpetual bonds were worth 38.375 cents to the dollar on Wednesday, their lowest in seven months.

Shravani Dang, a company’s spokeswoman in New Delhi, declined to comment on Ballarpur’s plans to meet its obligations including commercial paper payments. The company in February deferred coupon on $200 million perpetual bonds sold in 2011.

“Given the severe liquidity constraints, existing lenders are unlikely to grant further credit,” Akash Gupta, an associate director at Fitch, said in an interview. “If that is the case, they will struggle to get operations back on track as well as in addressing maturities.”

The 60 listed Indian paper makers generated a total loss of $99.4 million in the last 12 months, widening from a loss of $18.7 million in the previous year, according to Bloomberg-compiled data. Paper imports into India have doubled since 2010 and Chinese and Indonesian producers are diverting excess inventory into the nation after the U.S. tariffs, the Indian Paper Manufacturers Association said in a statement to government last November, requesting relief.

Ballarpur has a 500 million rupee bond due June 21 and a 600 million rupee bond due Sept. 29, according to Bloomberg-compiled data. Ballarpur is part of the Avantha Group, an engineering, foods to paper conglomerate, run by multi-millionaire Gautam Thapar.

Declining demand for traditional paper in mature markets is being offset by growth in Asia, according to Bloomberg Intelligence. India consumes over 16 million tons of paper and paper products a year, with over 2 million being imported, according to India’s paper manufacturing lobby.

“The company hasn’t been able to operate at optimal capacity due to inadequate working capital,” said Fitch’s Gupta. Free cash flows will be inadequate to meet Ballarpur’s debt obligation needs over the next three years and “asset sales or significant refinancing would be required to meet its repayment obligations,” he said.

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