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Subam Papers Limited has issued a corporate guarantee of Rs.11.70 crore in favour of HDFC Bank to secure credit facilities for its 80%-owned subsidiary, Nellai Subam Packaging LLP. The facilities consist of a Cash Credit (CC) Limit of Rs.4.00 crore and a Term Loan of Rs.7.70 crore. The company is a Designated Partner in the LLP holding an 80% contribution and profit-sharing ratio. The company has stated this is an arm's length transaction and that no immediate impact is expected except for the contingent liability if the LLP defaults on repayments.
The guarantee creates a contingent liability of Rs.11.70 crore for Subam Papers. While the company says there is no immediate impact, shareholders should monitor whether Nellai Subam Packaging LLP's operations generate sufficient cash flows to service this debt and avoid a potential call on the guarantee.