The board of India’s largest bulk tea producer McLeod Russel India has approved the execution of a binding term sheet with Carbon Resources Pvt Ltd to sell a part of their tea estates for Rs 700 crore, bringing the company a step closer to resolve the outstanding debt problem with banks.

The proceeds of the garden sale would be utilised by McLeod to reach a one-time settlement (OTS) with banks which collectively have an exposure of about Rs 1,600 crore.

As part of the deal, the Jalan family-owned Carbon is going to acquire 15 gardens which are collectively capable of producing about 18 million kg of tea annually.

The sale of the assets is pursuant to a debt resolution process to be undertaken by the lenders under the RBI’s Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 for an OTS of the debt owed by the company to its identified lenders, McLeod informed the bourses.

“The proposed transaction is subject to execution of the final definitive agreements and the satisfaction of conditions precedent as stipulated in the term sheet and receipt of such permissions and consents, that may be required, including the consent of the shareholders and the approval of the identified lenders of the company of a OTS of the debt owed by the company to such identified lenders,” the notice to the exchanges read.

Khaitan family-led McLeod has 31 gardens in Assam and two gardens in Dooars, capable of producing 45 million kg of tea. With overseas tea estates in Uganda and Vietnam, the annual production of McLeod is about 69 million kg.

The Telegraph had earlier reported that McLeod had offered Rs 1,030 crore as an OTS amount to banks. “The Carbon deal hinges on banks getting approval for the OTS,” said a source aware of the development.

Two companies are looking at closing the transaction by December 31, 2023 which indicates Carbon, if successful in acquiring the gardens, will have to spend additional money to maintain the estate during the winter months.

The expense from Carbon, one of India’s leading electrode paste makers, will be Rs 75 crore for the winter works, taking the total cash outgo for the deal to about Rs 775 crore.

The execution of a legally binding terms sheet is going to be a milestone in the Carbon-McLeod saga which had its fair share of ups and downs. Carbon had picked up a 5 per cent stake in September 2022 and sought to force a change in management in McLeod by making a non-binding offer to banks.

They entered into an exclusive discussion in January which later expired as McLeod was sucked into insolvency proceedings initiated by IL&FS Infrastructure Debt Fund. After McLeod slipped out of insolvency, Carbon sold the stake in the market, angered by the tardy progress of talks with Khaitans. They returned to the negotiating table later.