McLeod Russel India Ltd has entered into an exclusive agreement with Carbon Resources Pvt Ltd to thrash out a mutually agreeable mechanism for a one-time settlement of debt that the bulk tea producer owes its lenders.

The decision to work jointly to resolve the debt woes of the Khaitan family-promoted McLeod comes four months after Carbon Resources, which makes input materials for the steel and ferro alloy industry, picked up a 5 per cent stake in the tea producer and made an unsolicited offer to banks to take over the company and completely change the management.

Sources in Carbon Resources, promoted by the Jalan family, said they are now ‘open to anything’, indicating a move away from hostility to co-operation.

“All options are open. We have to see how the debt problem of McLeod can be resolved,” they said.

‘Anything’ may also involve Carbon becoming a strategic investor in McLeod, which the Jalans had previously ruled out.

Officials at McLeod Russel pointed out that banks have asked the promoters to consider a one-time settlement (OTS) even as discussions for a comprehensive restructuring of debt are on.

“As there is a non-binding offer already from Carbon, we decided to enter into an exclusive discussion with them. It is only a preliminary step,” sources at McLeod said.

A notice to bourses said the exclusivity period would be for 60 days. Even though a debt deal has eluded McLeod for over three years, the company is hoping to make a meaningful stride by March 31.

“The board of directors of McLeod Russel India Limited... has considered and approved the execution of an exclusivity agreement with Carbon Resources for a period of 60 days to exclusively discuss, negotiate and evaluate a mutually agreeable mechanism for the company to offer a proposed one-time settlement of debt with identified lenders,” the notice to the bourses read.

The notice also added that the agreement ‘does not create any legally binding obligation on any party’.

Deal contour

For a while Calcutta’s tea industry circle was busy speculating about the deal structure at McLeod, the big daddy of tea plantations.

Many believed that an amount of Rs 1,110-1,200 crore has to be stumped up as the OTS amount to lenders that have a combined exposure over Rs 1,600 crore. However, officials at McLeod and Carbon argued that a final number is yet to be reached.

The restructuring proposal had three major components to it: raising cash by sale of assets (tea gardens) and infusion of fresh equity by the promoters/strategic investors and roll over of some part of debt with a 15-year repayment schedule.

In an OTS, the banks would only be interested in a finite number which can be reached either by garden sale and/or infusion of equity.

“The OTS amount will determine how many gardens would be sold by the Khaitansto bring in cash,” said a source.

McLeod’s own production of bulk tea is about 44 million kg. If the overseas plantations of Uganda and Vietnam are considered, the combined production stands at 70 million kg.

Higher the direct equity infusion from the promoter or the strategic investor (Carbon), lower would be the requirement of garden sale, said an insider.