Top company sources told The Financial Express on Tuesday that Ponni Sugars, following a court directive, had held separate meetings of its secured and unsecured creditors recently to get their backing for the demerger of its loss making Balangir unit from its zero-debt Erode Unit. However SBI alone had steadfastly opposed the proposal closing all options before the management but to refer the company to BIFR.

Had the demerger plan been accepted by SBI, Ponni Sugars would have spun off its two divisions in Erode in Tamil Nadu and Balangir in Orissa into two separate companies with independent balance sheets under the name of Ponni Sugars (Erode) Ltd and Ponni Sugars (Balangir) Ltd. The idea behind the demerger plan was to insulate the profit making Erode unit from the bleeding Orissa unit, which had piled up debt to the tune of over Rs 100 crore. The company source said that if this plan was acceptable to SBI, the company's networth would have remained positive and Ponni Sugars would not have become a sick company. He said the recast plan had several advantages including an extended morotorium as well as much extended repayment schedule, which would have spruced up the cash flow of the company. The FIs had also agreed to cut the interest rates on loans drastically, he said. Besides, the plan would have helped the company to tie-up working capital on a much easier terms.

However, SBI, which had extended close to Rs 15 crore to the company and another Rs 13 crore to a slew of irrigation co-operative socities in Orissa, has opposed to the demerger proposal on the grounds that their interests would be compromised if the two units were delinked. Ponni Sugars had given its backing to the loan taken by the co-operatives from SBI.

Ponni Sugars had set up its 2,500 tonne crushing per day (TCD) Balangir unit in 1994 at a total investment of Rs 50 crore, including term loans from banks and institutions. However, the unit has failed to take off following various reasons and turned out to be drain on the resources of the company as a whole eroding its overall financial position. The total loss of the unit is pegged at Rs 100 crore. Of late, Ponni Sugars has found its funding options drying up forcing it to work out the demerger plan. Earlier, an alternate plan to bail out the Orissa unit by arranging funds from Orissa State Co-operative Board with the concurrence of NABARD had also failed to see the light of the day.