Over the past few months, the Dh12 billion trade has been rocked by cases where the defaulting traders had either fled the country or thrown down the towel amid piled up debts. According to some sources, the new cycle of failures, reminiscent of the early 90 when the trade was plagued by huge unpaid debts and slump, comes at a time when traders were sounding upbeat about the prospects in Iraq and other new re-export markets. .
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The latest business failure jolting the Dh12 billion textile sector follows the sudden exit of two traders – a father and son duo who own three trading entities – Transco Trading, Virdhi Textiles and Suntika Trading. Trade circles said Harkishen Das Mulani and his son Ashok H. Mulani had incurred debts totalling more than Dh20 million. According to them, the debt was due to transactions they did on behalf of Virdhi and Suntika, both wholly owned by Harkishen. According to TEXMAS, the official body that represents Dubai 300-plus wholesale textile merchants community, the size of the debt reported to them so far was only Dh12 million. Since all the outstanding cheques were signed by the father, Ashok, who is now the sole owner of the parent company Transco, is reportedly still in Dubai and negotiating with the settlement panel. It is understood that the defaulters have offered to pay off 35 per cent of total outstanding. .
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Another case is the second-time collapse of Shalimar Plaza LLC owned by Purushotham Mulani who originally owed some Dh15 million to various creditors and fled the country in January 2003 but returned within a month on the timely intervention of TEXMAS. Sources said he had agreed for a full settlement and so far managed to pay off some 55 per cent of the outstanding. But in the meantime, he also had started piling up fresh debts through new transactions. The case took an interesting turn when Shalimar assets were transferred to Supreme Trading, one of its major creditors without the knowledge of other creditors. Last month, following the lavish wedding ceremonies of his son and daughter, Purushotham again made a dramatic exit from Dubai leaving his creditors high and dry. It is rumoured that he could have only left by a launch as his passport was taken as a guarantee by TEXMAS. .
.The third case is that of Jeetn Dubai Textiles owned by Jeetn Kalwani who is said to have debts accrued to the tune of some Dh14-16 million. Trade circles said Kalwani, who started by his own more than a year ago, was making huge purchases from various wholesalers and selling those goods to East Europeans at “ridiculously lower prices”. “His was a smart operation. Within a year, he had made millions and did the vanishing act a month ago,” said a wholesaler. .
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Kalwani, who is in India now, is believed to have given TEXMAS an undertaking to pay off the full outstanding within 20 months from September 2004. On such an assurance, TEXMAS has managed to retrieve his defaulted cheques amounting to Dh7 million. .
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The fourth case is that of Eshwar, who owned Korean Textiles.
He is said to have left Dubai amid debts amounting to Dh8-9 million, mostly owed to a confirming house whose main business includes opening letters of credit for small and medium traders who do not have a bank facility. These players are said to charge a fee of 24 per cent of the total amount per year vis a vis the bank interest rate of six per cent. .
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Jhaman Asnani, chairman of TEXMAS, said the group was trying to negotiate a settlement in some cases. He said despite the best efforts by TEXMAS over the past several years in streamlining inter-trade transactions in a move to reduce incidence of defaults, such business collapses could not be fully thwarted. He cautioned the traders to exercise restraint in extending credit line. “Now the normal payment period is up to six months, and sometimes seven months. Unless we reduce the credit lines, and exercise more caution such failures are bound to happen again.”.
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Tejinder Khurana, committee member of TEXMAS, said Dubai textile trade, which is heavily dependent on re-export market, is afflicted by a severe competition from Chinese traders who dump their goods at very low prices. Since some of the overseas markets of Dubai are currently being directly supplied from China, the local textile trade is poised to lose a major part of its re-export trade accounting for some 85 per cent of the total volumes. “Apart from this, Chinese textile traders are also giving a tough competition to the traditional Indian-dominated sector though heavy undercutting. It remains a puzzle how they can afford to sell these goods at such a low price,” he said. .
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The Dubai textile trade is ranked second in terms of value after the oil industry. Following last year robust overall sales growth and a nine per cent growth in imports, the trade recorded some 15 per cent first quarter surge this year. .
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And with the launch next year of the Dh220 million Dubai Textile City – a free zone concept aimed positioning the Dubai as the regional hub of the textile trade – the trade is hoping for a major turnaround.
Date:6/10/2004
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