Restructuring of Tri Star Garment Industry

Proposed Joint-Venture Partnership:

Tri Star Apparels (pvt) Ltd sought our assistance to restructure and transform into a viable venture.  Having studied it current position, we made some radical but beneficial suggestions to the management of Tri Star before undertaking the restructuring exercise.   We suggested two proposals knowing its current position of Tri Star, one being a Management Buy-out (MBO) and the other being a Join-venture Partner with the controlling share with the investor.  They agreed to our second proposal. We undertook the Project and are now in the process of finalizing the negotiation for the investor to take over the Organization with current assets and liabilities with no payment whatsoever to Tri Star but awarding a 20 per cent share.   

Tri-Star Apparels (Pte) Ltd which created a name for the Garment Industry in Sri Lanka, commenced its business in 1979 with 15 sewing machines and 25 employees under the name of Thushara Garments in a very small scale and subsequently expanded to cover the rest of the country.  It has experienced its peak as one of the largest leading apparel manufacturing export Companies in the South East Asian region capturing the export markets in the Europe, USA and Middle Eastern countries.  It had a workforce of around 8000 and now it has downsized it to around 4000 with 20  factories  in operation,. due to various reasons, such  as  change of Governments and their policies on garment industrial sector,  loss  of  GSP +  where  the  price  benefits  and  the  business  were  reduced  due  to unfavorable  business  climate  with the result that the  banks  cutting  down  their  FOB  facilities  without  understanding  the  nature  of  our  business and the  huge  responsibility that we were shouldering to sustain our business and  to  maintain our workforce  without  resorting  to  retrenchment  as  this  workforce  was  the success story behind Tri Star to become the pioneer in the garment sector in Sri Lanka at a point of time.

Though Tri-Star has a liability component to the tune of around USD 35 million  and one third of this component as Assets, which is also mortgaged to the main bank, Bank of Ceylon, it has successfully initiated an unambitious programme to go through a restructuring process.  Except for the statutory liabilities, all the other liabilities could be settled on a staggered basis by way of adopting a method  of ‘earn and pay’.  Therefore what is needed now is to embark on a JV Partnership with a well to do partner who has interest in the garment industry and could take over the controlling share of the Company and manage with the necessary capital infusion whilst focusing on bringing down the liability component to a manageable level.  Tri-Star can still re-establish its rapport with its old customers in the Europe, USA and Middle East whilst increasing its production on a target set basis by the new management within five years.  It is part and parcel of our restructuring exercise to convert and strengthen the current running business to FOB and grow further on this product line, which would be most viable and fast profit generating mechanism to the Group.

In our view,  we need funds to the tune of 10 m USD, 2 m USD for ‘’Working  Capital’’  infusion and 8 m USD to set off the immediate statutory payments  whilst restructuring Tri-Star Group to transform it  into a  viable  venture as a profit making enterprise after around six to seven years.  We attach a projected Cash Flow statement with a capital infusion of 2m US Dollars into the business whilst systematically reducing the liabilities to a manageable level and the assets  valued over 10 m USD     strapped with our lenders could easily be released and  brought into the  Company to strengthen its net asset value.   The re-introduction of the GSP + is another factor which in my view is a blessing in disguise to the success of the business in addition to the current conducive environment created by the  Government with immense supportive facilities for all industries and business enterprises in Sri Lanka.

Tri Star has been associating with the said customers continuously for over 30 years now and Tri Star was the first manufacturer to develop and bring such a high reputed customer network such as M&S to Sri Lanka.

The Company has a strong brand name with high street retailers in the market doing quality products with best delivery performance which the customers have benefited for many years during the Company’s history, hence the customers have a long standing and personal relationship with Tri Star during the history of the Company where they were part of fostering the industry in this country.

In the circumstances, the Tri Star as the pioneers of garment industry in Sri Lanka with a vast experience and expertise to its credit will no doubt have a bright future, if  a matching JV Partner with the right vision and commitment were to join hands with Tri Star with the necessary investment which could be decided upon at a one to one meeting, and work together and enjoy the benefits.  We would be able to take over  the  factories  we  had  already  leased  out  and  expand  the  business to flourish once  again.

With this end in view, we, with a very high reputation both locally and internationally for transforming many a sick industry/enterprise into viable venture,  have undertaken the  Restructuring  Programme  and   the right investor is found on the above-mentioned basis. The Bank of Ceylon being the primary bank of the Consortium of banks, has not been able to accept our timeline proposed for the restructuring of Tri-Star, owing to the fact that any further delay in going ahead with their Prate Execution process of selling the mortgaged properties might, in their view, deprive the opportunity to find right buyers and the price.   This course of action by the Consortium of banks due to the delay on the part of the Investors who wanted to do a due diligence to finalize their stand in the restructuring process had put the negotiations off the track.  Hence we could not proceed with our negotiations between the Investors and the banks with the result that the IRC (Pvt.) Ltd. had to pull out.

It was a fact that the Tri-Star (Pvt.) Ltd. had come to a stage of liquidation but still it would have been bailed out on the strength of around seven factories which were given on lease, doing extremely well and also with the new Investor who was prepared to infuse working capital to meet the orders in hand.  However, the reluctance  and hesitation to proceed with the restructuring exercise on the part of the banks had derailed the genuine efforts jointly  made by  the IRC (Pvt.) Ltd and the Investor.

Ultimately the banks decided to call for bidders to sell all the  mortgaged properties and to support a liquidation process rather than giving an opportunity to the Tri-Star to raise its head (March 2017).

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