City-based Carbon Resources Pvt Ltd (CRPL) has mounted an audacious takeover bid for troubled tea planter McLeod Russel India Ltd by offering a lucrative one-time settlement to the banks. CRPL, which makes input materials in steel and ferroalloys, is seeking control of the tea planter with a complete change in management and the board of McLeod Russel and a majority equity stake.
A non-binding offer has been sent to all the banks, including lead lender ICICI Bank, on Friday after the company stunned the market with a 5.03 per cent stake purchase. The company, promoted by Suresh Jalan, is now the second largest equity stakeholder of McLeod, which is under the effective control of the Khaitan family of Calcutta.
The Telegraph on Monday reported CRPL checking in to McLeod with a sizeable market purchase. The McLeod stock sizzled for the second trading day as it jumped 20 per cent to end the day at Rs 34. The offer of CRPL includes Rs 640-crore upfront payment to the secured lenders , which represents 100 per cent recovery for banks and Rs 605 crore to the unsecured lenders, representing 55 per cent of the principal amount — making it a Rs 1,245-crore deal.
“We have made our best offer to the banks and we hope they will consider it positively. Our stock purchase on Friday was to signal our serious intent about the proposal,” Abhinav Jalan, a director of CRPL, told this newspaper on Monday. Banking sources said the lenders of McLeod will meet later this week to discuss the offer.
The secured lenders of the company include ICICI Bank, SBI, PNB while the unsecured lenders include HDFC Bank, Axis Bank and Yes Bank. CRPL plans to finance the deal with a mix of equity and debt. The company, which clocked a revenue of Rs 2,416 crore and profit after tax of Rs 268.2 crore on a consolidated basis in FY22, intends to infuse Rs 300 crore in fresh equity and take on debt of Rs 945 crore, according to the proposal.
On a diluted basis, the equity infusion will translate around 50 per cent stake in McLeod. The company said it would close the transaction and make all payments within 60 days from the date that the banks accept the offer. The Khaitan family, which recently lost control of storage battery maker Eveready Industries India to the Burmans of Dabur, is now in danger of losing the other family jewel if bankers consider CRPL’s proposal favourably. Sources pointed out the Khaitans would be waiting for the banks to respond.
“It is just a non-binding offer. Banks will have to consider that the company employs 70,000 workers, whose well-being must be considered,” they said, adding the recent interest in the tea sector has a real estate angle to it.
McLeod’s existing management is in discussion with lenders to restructure the debt of the company which stands at Rs 1,650 crore (principal amount). A draft resolution plan prepared by SBI Capital Market is being confirmed after obtaining the final valuation of the assets and credit rating of the company and was supposed to be placed for necessary approval for implementation.
The logic
McLeod’s business can give a decent return on investment if managed well, Jalan said, adding the company founded by his father in 1991 in Giridih, was looking to diversify from electrode paste and calcined petroleum coke business to a new sector when this opportunity surfaced on the radar. “Tea will not give a huge return but it can be a steady business.
McLeod is India’s largest bulk tea producer and the company’s present set of problems do not stem from core operation,” Jalan explained. He also discarded any possibility of selling McLeod’s gardens. “We have no plans to sell any of the gardens of the company in India,” Jalan said, adding that a different approach may be considered for McLeod’s overseas plantation, especially the loss-making one in Vietnam. McLeod operates 33 gardens in India, including 2 in Bengal and 31 in Assam producing about 44 million kg of tea.
