The bet on the infrastructure business had gone wrong that took a toll on other group firms, the majority shareholders and promoters of Calcutta-based Williamson Magor Group admitted on Monday.
The Brij Mohan Khaitan-family, the force behind the WM Group, borrowed heavily on the strength of the fundamentally stronger companies in its stable — bulk tea producer McLeod Russel and dry cell battery maker Eveready — to support engineering firm McNally Bharat.
All the companies have now become so over-leveraged that the owners need to sell all conceivable assets to keep them afloat.
“There were issues raised as to why did we borrow and lend to some of the other companies. I tell (you) very clearly that in the hindsight today, yes, it was a mistake,” Aditya Khaitan, chairman of McLeod Russel India Ltd (MRIL), said while replying to shareholders’ observations during the annual general meeting.
Price Waterhouse & Co Chartered Accountants LLP, independent auditor to Eveready Industries, pointed out that the Rs 519.88 crore lent (principal and interest) to group firms is outstanding as on March 31, 2019. PW later quit the job after giving a “disclaimer of opinion” to the financial statement.
Similarly, Deloitte Haskins & Sells LLP, independent auditor to McLeod Russel, noted that Rs 1,744.68 crore given as inter corporate deposits (ICD) to group firms were in the nature of “doubtful recovery”. It also pointed out that Rs 775.75 crore was converted to ICD out of Rs 841.75 crore lent by MRIL to other firms in the last fiscal alone.
Deloitte later quit the job too after giving an “adverse opinion” to the report.
Khaitan sought to explain why the loans were offered: “The company receiving the loan was in serious trouble and we wanted to see whether that company could turn around. It was in the infra space. We believed that India is a country that will require infrastructure and it is something we felt could be the next business and growth for the group. Unfortunately the time it took to revive and grow has taken a toll on this company and the group.”
Khaitan said a group restructuring was underway, which would include the disposing of assets.
Speaking after the AGM, Khaitan said fresh lending to McNally from other group firms had stopped from the end of 2018.
“McNally is going to chart its own course. We are trying to get a new investor for it,” he said.
On August 14, the board of McNally said it had entered into a non-binding memorandum of understanding with a consortium of investors led by Turbovent Industries of Hyderabad to invest Rs 150 crore in the company.
Khaitan also confirmed that SBI Caps has been appointed by ICICI Bank, lead bank of MRIL, to carry out a comprehensive debt restructuring of the company. He, however, declined to comment on the report of Duracell buying the battery business of Eveready for Rs 1,600 crore.
“The family and the company have made it very clear that we are not going to put our hands up. To show the commitment, we are in the process of restructuring the entire group, we are in the process of disposing of assets so that money can be brought back,” Khaitan said.
Tea woes
The management painted a grim outlook for the tea business, the core business of MRIL, for this fiscal. Prices are soft globally because of oversupply in Kenya, whereas costs are high in India because of increasing wages.
Even though orthodox tea produced in Assam is fetching a good price, the market for the variety is limited. Selling to Iran, a big buyer of orthodox tea, is limited because of US sanctions.
Khaitan said MRIL needed to look very different from what it was when the company went on a shopping spree earlier this decade and acquired Dumduma gardens, George Williamson and gardens in Vietnam and Uganda.
The company is now in a selling spree, offloading several gardens in India and abroad, not only reduce debt burden but also cut own tea production.
