McLeod Russel, India’s largest bulk tea producer, is inching towards the resolution of its debt woes as two of its largest lenders seem to be coming on board for a comprehensive restructuring of the outstanding debt.
At a virtual meeting in the last week of July, the consortium of bankers agreed to work on and further refine the plan which includes, but not limited to, the combination of conversion of loan and interest into preference shares, extension of the loan maturity period and deferred payment of interest and principal.
Not all banks are immediately on board with the plan on the table but efforts are being made by the top lenders to bring about a consensus. McLeod Russel, which published its annual results on Friday, disclosed that the bank appointed professionals have submitted a draft resolution plan which is under the consideration of the lenders.
MRIL, belonging to Calcutta-based Williamson Magor Group, has a debt of around Rs 2,000 crore on the books. Yes Bank and HDFC Bank have the highest exposure totalling around Rs 8,00 crore, while ICICI Bank is the leader of the consortium.
It has been assessed that the company can service debt of around Rs 1,200-1,300 crore, indicating the lender must agree to a plan to shave off Rs 700 crore of debt.
Banks had appointed SBI Caps to hammer out a plan while a city-based firm was instructed to carry out the techno economic viability of the business. Lenders veered towards the idea of restructuring when it was assessed that they stand to lose big if MRIL goes into liquidation.
“That the company has still not been admitted for bankruptcy proceedings is a testimony that bankers are willing to find a resolution outside the courtroom,” a source who is aware of the deliberations, said.
Previously, the Khaitans, the promoters of McLeod, were trying to rope in a strategic partner in the company. However, the pandemic has put a spanner to the plan because of the ban on international flights to India. The potential investors are unable to travel to carry out the necessary due diligence.
“With the ban on international travel in place, the restructuring plan does not immediately involve the induction of a strategic partner. If everything falls in place and the company becomes an attractive investment proposition, a transaction may happen at a future date,” a MRIL official commented.
The restructuring process has gained momentum at a time tea prices at auction centres have gone up by Rs 70-80 a kg following crop losses during the summer months because of the nationwide lockdown. If the price stays at the elevated level, it may provide additional comfort to the lenders.
Given the extreme risk averse sentiment among bankers in India, the plan needs to get the approval from the top level of each bank. This could be a tall ask but there is a possibility that this may be done by October.
MRIL had fallen into a debt trap by indiscriminately lending to group companies, especially McNally Bharat Engineering Co Ltd. A sum of Rs 2,846.10 stands outstanding as on March 31, 2020, provided to the group firms as inter corporate deposit, the result noted, prompting an adverse opinion from auditor Lodha & Co, who opined that the loan is doubtful of recovery.
The outflow has created severe liquidity constraints on the continuing operation of the company. It ended the year 2019-20 with Rs 148.19 crore loss compared with a Rs 38.81 crore profit in 2018-19.
“On the books of the company, ICDs are assets. We hope to restructure the repayment terms of the ICDs when there is a restructuring of the liabilities (debts),” a source said.
MRIL continues to have 33 gardens in Assam and Dooars with annual production of 43 million kg of own tea. It sold several gardens in order to pay off creditors. The asset sale process is now stuck due to legal tangle.
