Neck-deep in debt, is ChenOne and its parent company about to make a comeback?

Byline: Hassan Naqvi

In some ways, the story of Chenab Group, the textile manufacturing conglomerate that is also the parent company of the retail brand ChenOne, is not unique. Like many of Pakistan's upper middle-market companies - the ones just on the cusp of being large but not quite - Chenab tried to grow too fast with too much debt during the easy money era of the Musharraf years, and crashed hard after the financial crisis of 2008, and has yet to recover since.

Yet unlike some of the other financial carcasses of the 2008 crash, the owners of Chenab have continued to try to revive their business. And in recent weeks, some favourable rulings in the ongoing bankruptcy proceedings for the company at the Lahore High Court seem to indicate that it may be on track for a revival.

The group has submitted an ambitious revival plan to its creditors and many of them, led by Habib Bank, appear to be on board with giving the group one more try at reviving its fortunes, agreeing to a restructuring of its debts on relatively favourable terms, in a bid to allow the company some financial breathing room to resuscitate and then grow its operations.

Whether the plan will work, however, depends not just on whether the banks will allow the company to restructure its balance sheet, but also whether its majority owners - Mian Muhammad Latif and his family - have learned the right lessons from their mistakes.

In Chenab Group's tale is the story of how even a relatively innovative, fast-growing company can lay the seeds of its own demise if it tries to grow with too much borrowed money. And it is also the cautionary tale of how a perfectly functional export-oriented business can suddenly find itself debilitated owing to a lack of financing once the banks decide to cut it off.

The early years: innovation and growth

It is hard to think of it this way now, but Chenab was once one of Pakistan's most innovative textile companies.

When it opened its flagship store for ChenOne in Lahore in 1998, that was the first time that Pakistani consumers had the opportunity to shop for home textiles at a store that was more than just a glorified warehouse: it showcased the company's products on actual furniture and in settings that allowed customers to visualise what they would look like in their own homes, creating the first aspirational home brand in Pakistan, similar to companies like Bed Bath and Beyond in the United States.

The Chenab Group itself started off in 1975, when Mian Muhammad Latif and his three younger brothers decided to make the transition that many of Punjab's large rural landholding families were making between the 1950s and 1980s: moving their main source of wealth away from farming the cotton - and other crops, such as sugar - and towards setting up the industrial units that would process and sell a finished good.

Mian Latif's family were large landholders in Toba Tek Singh, a district roughly halfway between Faisalabad and Multan. In 1975, they set up Chenab Textile Industries, moving the family from growing cotton and ginning it towards spinning cotton yarn and weaving it into cloth. Over the years, the group diversified its activities and in April 1985, it created its first corporate entity called the 'Chenab Fabrics and Processing Mills Ltd'. In March 1991, it was converted into an unlisted public Ltd company. Thereafter, in 2000 the company's name was changed to its present name Chenab Ltd.

Chenab - like many of the nation's largest textile companies - is headquartered in the Nishatabad area of Faisalabad. The cloth-processing unit and stitching units are located at Nishatabad and the weaving units are located at Sheikhupura Road, Kharianwala, in Sheikhupura district, and in Shahkot in Nankana Sahib district. The spinning unit is located in Toba Tek Singh.

'We [initially] produced textile goods for the local market. In 1985, we initiated exporting goods started from the Far East from where we moved to Europe and then USA and we exported goods to around 42 countries,' said Mian Kashif Ashfaq, CEO of ChenOne, and part of the second generation of the family to enter the business.

It was the entry of that second generation into the business that catalyzed some of the most innovative changes in the way the group does business. 'In 1997, I joined as a director and we established the first store of ChenOne,' Kashif said. The retail chain currently has 48 stores, including some overseas stores in the United Arab Emirates and one in Saudi Arabia.

In addition to their core business, the group also owns some other smaller business, including CGI Ltd UAE, InterFab in Australia, Chenab Fibres Ltd, ChenSoft, Chenab USA, ChenOne Worldwide, House of Chenab and the ChenOne Foundation.

Until it was shut down in 2017 as part of the bankruptcy proceedings, Chenab Ltd derived about 70% of its revenue from home textiles - both its export business as well as through ChenOne stores locally - and about 30% from apparel.

Growth in the Musharraf years

In 1999, when Gen Musharraf took power in a military coup, the Chenab Group was still a lower middle-market business in terms of size. And ChenOne at the time only had three stores, though its fourth store opened up in Karachi that year.

During the Musharraf Administration, however, as the government privatised the banks and encouraged private sector lending, particularly for industrial growth projects, the Chenab Group started expanding aggressively.

For the financial year ending June 30, 2001, Chenab Ltd, the group's main publicly listed company, had revenues of Rs3,406 million. Over the next six years, the...