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Tue 9 Oct 2018 09:28 AM

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Indian rice exporters face $200m loss over Iranian importer

Iranian rice importer Mohsin, which recently defaulted on $140m payments, has filed for bankruptcy

Indian rice exporters face $200m loss over Iranian importer
Indian rice exporters are grappling with the payment defaults by Iranian companies even as they stare at the possibility of exporting to that country coming to a halt due to the impending US sanctions against it, kicking in from November.

Leading Iranian rice importer Mohsin, which has recently defaulted on payments to the tune of over Rs 1,000 crore (Approx $140 million) to several Indian rice exporters, is understood to have filed for bankruptcy in Iran, putting a big question mark over chances of recovery of the payments, according to trade and industry sources in India.

The development has sent ripples across Indian rice exporters who fear this could even lead to many of the small and medium-size rice exporting firms in India shutting shops due to heavy losses.

Indian rice exporters are grappling with the payment defaults by Iranian companies even as they stare at the possibility of exporting to that country coming to a halt due to the impending US sanctions against it, kicking in from November.

Though the exact amount of payments Mohsin and other Iranian rice importers have defaulted to their Indian exporters could not be ascertained, rice industry sources have put it in the range of Rs 800 crore to Rs 1,500 crore ($110 million to $205 million approx). Indian exporters allege that Mohsin might have siphoned off the money, leading to defaults by the company.

Discounted rates

Large-scale payment defaults by Mohsin and some other Iranian importers to Indian rice exporters came to light in August this year.

Basmati rice accounts for bulk of Indian rice exports to Iran. Incidentally, the Iranian Government provides USD and Euro at highly discounted rates to the food importing firms there to compensate the steep fall in the Iranian currency Rial due to the looming US economic sanctions against the country.

“We have taken up the issue of payment defaults by Iranian rice importers including that by Mohsin with the Indian commerce ministry as well as the Iranian Embassy officials in Delhi and have been pursuing vigorously for recovery of the payments,” Vijay Setia, President, All India Rice Exporters Association (AIREA), told Arabian Business.

However, he said the association will now try to ascertain the information about bankruptcy filing by Mehsin in Iran, before chalking out the next course of action. Mohsin is said to account for lion’s share of defaults by the Iranian importers.

Mohsin brand

Meanwhile, the Ahmedabad-based Adani Wilmar, a leading player in the agri-processed foods and edible oil sector, has reportedly acquired the Mohsin brand from the Iranian company. Though the company has fallen on bad days, its brand is billed as one of the leading food brands in Iran.

Industry sources said Adani Wilmar has only acquired the Mohsin brand and would not be liable for the Iranian company’s liabilities.

Industry body officials, however, said there could be a possibility of the affected rice exporters knocking on the doors of Adani Wilmar for exploring possibilities for at least partial recovery of the payments.

Despite repeated attempts, Adani Wilmar executives could not be reached for their comments on the issue.

Basmati rice exports

One of the Indian rice exporting firms which is the victim of payment default by Iranian importers, recently approached the Delhi High Court, which, in turn, has directed the nodal Government authority - the Agricultural and Processed Food Products Export Development (APEDA) to pursue the matter at Government level.

India exports about 25% of its total Basmati rice exports to Iran, which opens a 4-month window till September for rice imports at discounted imported duty. Iran’s domestic rice prodution comes into the market after this period, because of which it imposes higher import duty to discourage imports of rice into the country.

Iran allows rice imports both through private traders as well as direct government purchases through the tendering process. While private label exports command much higher margins, Iranian Government purchases offer very low margins due to the competitive tendering process.

Industry sources in India said because of the limited window available for pushing exports to the lucrative Iranian market, some of the Indian exporters might have routed their rice exports to Iran through Dubai, without the mandatory filing with APEDA or opening up of LCs (Letter of Credits) for payments.

Such trade practices would make the payment recovery process more complicated and difficult for exporting firms which might have resorted to this route.