Tea manufacturers say the sector cash flow problems are worsening despite a government assistance package. This time because banks are unwilling to offer credit, even with a government guarantee.
“The government said it will give assistance for working capital loans and said the Treasury will give a 6% interest subsidy on loans. In January the Treasury issued instructions to the banks. So this has a 100% treasury guarantee. But up to now no one has got any money because the banks are asking for collateral and mortgages,” Chairman of the Private Tea Factory Owners Association, Anil Perera told the Sunday Times FT.
However, tea factories are already heavily in debt to banks.
“Many factories have already borrowed to develop the factories. So they do not have further collateral to offer. If the banks continue to ask for collateral and mortgages to give more loans, about 60% - 70% of factories may not quality to get any more loans,” said Mr Perera.
Tea factories say the government needs to address this situation. However, factories do not have a solution on how the government can get banks to overlook already outstanding loans to the sector.
“If we could have gone to the banks and got loans we would not have approached the government for help at all. The government needs to implement the assistance package urgently,” said Mr Perera.
Factory owners say their cash flows are also hit by a large drop in output, due to dry weather.
“There is a production drop in excess of 50% by now in the mid and low grown areas because of dry weather. Some factories are operating every other day because of the shortage of leaf. So although tea prices increased this year our production costs have gone up and production itself has reduced drastically,” said Mr Perera.
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