Dan River Bankruptcy: Global Aftermath
May 5, 2008-- Home Textiles Today,
With an estimated $30 million in Pakistani textiles hung up by the Dan River bankruptcy, a group of the country's mills has retained lawyers to explore lawsuits against Dan River and Indian parent company GHCL, possibly in both the United States and India.
Approximately 24 Pakistani exporters from Karachi and Faisalabad are owed money by Dan River, according to a press release from the Towel Manufacturer's Association (TMA) of Pakistan. The group is appealing to the government of Pakistan to take up the issue with the Pakistan High Commission in Delhi and the India High Commission in Islamabad.
Approximately $10 million in merchandise is sitting at U.S. ports accruing demurrage, or carrying charges for holding currency, according to the TMA. Another $10 million of product is in the pipeline, and an additional $10 million in payments is already owed to exporters in Pakistan, the association said.
Complicating the issue, goods sold through other GCHL entities – Baker and Best Manufacturing in the United States, which handle institutional business; and the Rosebys home textiles chain in the U.K. – were invoiced as Dan River, according to S.M. Obaid, chairman of the TMA export subcommittee and owner of textiles manufacturer Towellers Ltd.
"We feel this is a clear-cut case of fraud and we are trying to prove it through legal means," he told HTT.
Dan River said in court filings it has arranged to borrow as much as $32 million from GMAC Commercial Finance to fund its restructuring.
According to the Chapter 11 bankruptcy filing of April 20, Dan River missed its sales forecast by $5.3 million and its EBITDA (earnings before interest, taxes, depreciation and amortization) by approximately $4.6 million in the first quarter of 2008. The company also said price decreases demanded by its retail customers threatened to erode projected gross margin to less than 10% from the current 17%.
Following the April 17 HTT report that Dan River would be liquidated, GHCL said in a statement that shuttering Dan River will help it better pursue a retail venture in the United States.
"As the group is looking to enter into U.S. retail business directly, this poses a conflict of interest with the existing retailers as the market category between Dan River and existing clients may remain the same," GHCL chairman Sanjay Dalmia said in a statement.
"We are moving away from Dan River business of supplying to retailers on [a] CIF basis because of the huge costs involved," he added. "Our home textiles business vision is to clearly focus towards global retail in the U.S., U.K. and other under-retailed markets [Eastern Europe], whereby business operations in the U.S. would start realigning toward our direct retail and institutional objectives."
GHCL's Best Textile and HW Baker together will become a vertical entity supporting the institutional and hospitality businesses, the company said.
In 2006, GHCL acquired Rosebys, Britain's largest home textiles specialty retailer, and is in the process of establishing a Rosebys chain in India.
Two years ago, GHCL signaled its intention to acquire a retailer doing $1 billion in home textiles business. Although GHCL never identified the target, speculation at the time focused on Linens 'n Things. No transaction was enacted, and GHCL ceased talking about a U.S. retail acquisition.
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