SURAT: A plea for bankruptcy protection, filed by leading US diamond and jewellery seller M Fabrikant & Sons Inc, is sending shivers down the spine of the diamond manufacturing industry in Surat, as the company reportedly owes large amount of money to diamond units in the city.
Fabrikant-Leer International, a subsidiary of M Fabrikant, also filed a petition for relief under Chapter 11 of the US Bankruptcy Code last Friday.
Though the industry is tight-lipped about the development, sources said many diamond firms in the city are likely to suffer losses. According to them, the total debt of Fabrikant, which has a joint venture in the US with Mumbai-based Tara Jewels, would be around $363 million, of which it owes around $36 million (Rs 165 crore) to creditors. Of this Rs 165 crore, around 80-90%, amounting to about Rs 130-150 crore, are due to units in Surat.
Gem & Jewellery Export Promotion Council (GJEPC) chairman Sanjay Kothari, however, says Fabrikant’s total debt to Indian diamond merchants would be $25 million or around Rs 115 crore.
“Many diamond firms in Surat have close business links with Fabrikant, which is a major buyer of polished diamonds. The outstanding dues of these manufacturers will be in peril because of the bankruptcy-protection petition,” a leading diamond manufacturer told DNA Money.
However, sources pointed out that even if Fabrikant goes bankrupt, the creditors would be paid around 30% of their dues, so the economic losses would not be too huge. But there would definitely be loss of business.
“The bankruptcy petition will have an adverse effect on Surat’s diamond manufacturing industry as demand for polished goods will be hit. With Christmas round the corner, the development could not have come at a worse time,” said Dinesh Navadia, a local manufacturer.
Fabrikant is learnt to have run into financial troubles due to huge write-offs and reduced sales from the bankruptcy of two of its big retail customers and a reduction in Wal-Mart purchases. Secondly, its lenders imposed tougher borrowing rules following a poor financial performance in 2005.
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